I am an insurance agent, not a financial planner. In today’s world, it’s tough to distinguish between the two. The lines have blurred and the typical advisor is encouraged to be the “one-stop-shop” for their clients. Insurance agents market themselves as financial planners and many financial planners sell insurance.
Fee-only planners and “insurance-only” agents are very much the minority.
My Experience as a Financial Advisor / Insurance Agent
Early in my career, I worked for one of the largest and most respected life insurance companies in the world. During my two+ years with this company, I was required to get licensed to sell variable products. I was instructed to call myself a “financial advisor”, use fact-finding worksheets, and put together financial plans for people. The goal was to sell a cash-value life insurance policy that solved both protection and investment needs.
A cash-value policy earned me a much higher commission than selling term insurance along with mutual funds. Not to mention, it was a lot more work to sell both types of products.
Inherent Conflict of Interest
As you can see, I had a serious conflict of interest. On the one hand, I was a new agent who was motivated to be successful. With two young children at home, earning money was a top priority. I had quotas to meet so that I could maintain my contract and keep my health insurance benefits. So, I took the advice of my managers and sold as much permanent insurance as possible. I did “financial planning” with my limited knowledge and experience.
I soon realized that cash-value life insurance wasn’t the best product for most of my clients. As a new agent, I worked predominately with folks who were young and hadn’t accumulated much wealth.
Even though these people needed term life, I went ahead with my sales script and did my best to sell prospective clients a cash-value policy. After several months of this, I experienced a lot of dissonance and decided I needed to learn more about my business…and make a course correction.
I saw how several experienced agents handled their business and realized it was not for me. Some agents became Certified Financial Planners and others were content with less training. Either way, they were required to sell proprietary insurance products. Otherwise, they would lose their office space, support staff, and benefits.
Eventually, I decided to drop my securities licenses and focus on insurance only, not financial planning. I became an independent agent in 2004 and completely changed the way I helped people. Over the past several years, I learned a lot by working with fee-only financial planners.
Most Fee-only Planners Are Experts at Life Insurance
It is not easy to be an expert at life insurance, annuities and disability insurance AND be an expert at financial planning and investing. Some financial planners have an extensive background in life insurance products. Other planners don’t have the insurance background, but they have learned the ins and outs of insurance so they can better advise their clients. Some advisors simply don’t feel too comfortable with insurance.
I have met fee-only planners who have an excellent grasp on life insurance and annuities. They have dissected policy specimens and illustrations, so they understand internal rates of return, risks associated with non-guaranteed fees and charges, and every moving policy part. They appreciate the tax-favored status of life insurance and how it can be used in estate planning.
A competent, holistic, fee-only planner understands how life insurance fits into your financial plan. They don’t shy away from it, but incorporate it into their planning and recommend insurance when it’s in the best interest of their clients. No conflict there.
Recommending life insurance products is much different than selecting the best one and ensuring clients receive the best possible rate.
Fee-only planners understand the inherent conflict of interest in selling life insurance, but they also realize their limitations in helping clients secure the right policy with the right company.
So, even if your planner is above reproach in terms of ethics and honesty, they simply can’t provide the level of service and competency when it comes to selecting a policy and ensuring clients receive the best rates.
Many financial advisors who sell insurance tend to keep things simple. They might work with just a few life insurance companies. This makes their job much easier, but it can hurt their clients. The following list shows why working with an independent “insurance-only” agent is in the client’s best interest.
Independent Insurance Agents…
- know which carriers offer the best rates and value. This requires years of experience and staying abreast of industry changes.
- work with at least 30 life insurance companies and at least 10 disability insurance companies so they can best serve their clients. Many of the large online agencies work with limited carriers. See this article for an example of how this can save a client thousands of dollars.
- work with underwriting teams to ensure clients receive the most favorable underwriting classification. They don’t settle for unfavorable decisions, but shop with multiple carriers and advocate on behalf of their clients.
- get to know their clients well and communicate with their financial advisor. Most Advisors prefer this type of communication rather than sending clients to a call center at a large online agency.
Fee-only planners realize their clients benefit greatly from working with an experienced, reputable, independent agent. Many planners know at least a few insurance agents who fit this description. Giving their clients a choice of two or three agents is a valuable service. This approach also helps clients realize their advisor doesn’t stand to benefit by recommending just one particular agent or agency.
The Bottom Line
I have a lot of respect for fee-only planners. Rather than trying to do everything for their clients, they focus on what they do best. Fee-only planners understand the conflict of interest in selling insurance products. Additionally, they realize their clients will be better served by an expert who only handles insurance.
Several years ago, I needed surgery to repair a hernia. When I did my research to find the best doctor to perform the surgery, I was surprised to learn that there were many doctors who botched these surgeries. General surgeons perform hernia repairs, but some do this surgery more frequently than others. During my research, I found that some perform this surgery 10 to 20 times more than many others. I chose an expert surgeon who did hernia surgeries extensively and had very good reviews. He was a hernia expert.
Likewise, it’s a good idea to choose an expert when it comes to your financial health. When a financial planner also sells life insurance, he or she is less likely to help you secure the best coverage at the best rate.
It’s a good idea to ask your financial planner about life insurance products. Make sure they are comfortable in evaluating your coverages. If a replacement or additional coverage is needed, ask what they recommend and why.
The bottom line is fee-only financial planners have decided to focus on what they do best so your money can work most efficiently for both investment and protection needs.
