Ultimately, Fairness Will Prevail Over Self-Interest
In my early days in the insurance business, our local marketplace was infected by purveyors of stock and life insurance packaged together.
Because of low capital requirements for new life insurance companies, Arizona was a magnet for opportunists seeking to capitalize on the success of established life insurance companies.
The typical pitch entailed the salesperson pointing to large successful companies, lifting up their record of growth and then posing the question, “Wouldnt you like to have owned stock in such a company at its beginning and shared in its growth? Our plan gives you that opportunity.”
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Some of these salespeople were so uninformed that they even pointed to large mutual companies in their examples.
The objective was to sell stock in these start-up companies as well as small amounts of life insurance. I well remember talking to some of these people (when they tried to recruit me) and having them relate how easy the sale was. According to them, it was easy because if a prospect wanted insurance, you sold that and gave them the stock, whereas if they did not want insurance you sold the merits of the stock and gave them the insurance. A great example of “go with the flow.”
The abuses of this concept became so outrageous that the department of insurance stepped in and banned the practice of selling stock and insurance in tandem. The purpose of the ban was to prevent fraud and a conflict of interest in the sales process. The citizens of our state were, thereby, well served by the insurance department, for I am not aware that any of these companies ever amounted to much and, in many cases, whatever assets they managed to acquire were siphoned off into other enterprises owned by the organizers of the life companies.
This was indeed a dark period in the history of our business. Moreover, I believe it represents one of the pitfalls in financial services where sales people just go with the flow and take the path of least resistance to make a sale.
A recent joint meeting of a National Association of Insurance and Financial Advisors local association and the local Society of Financial Service Professionals chapter revived some of the foregoing history in my mind. The meeting was an annual tradition between the two organizations to discuss ethical practices. The speaker was a noted lawyer and CPA, best known for his work in fraud investigation and for cleaning up companies and other organizations engaged in questionable practices.
In his presentation, he used the Enron case as the horrible example wherein accounting, legal and banking services all were used to build a house of cards, and largely as a result of numerous conflicts of interest. It now appears that Enron was better at simulating profits than stimulating them, but the will of advisors to ask hard questions was stifled by an array of conflicts and self-interest.