To the Point by Jack Bobo

In the course of a year I often run across issues that are of interest or importance to our business, but do not offer enough material for a full column. So, for my final piece of the year I would like to pick up a few such items. They may be disconnected, but in one way or another they do impact upon our business.

The recent election, which produced a dramatic shift in power in the next Congress, had other results that were overshadowed and went largely unnoticed. I refer to the defeat of some judges who were notorious for outrageous awards in liability lawsuits. Voters in Mississippi, in particular, struck a blow against what some call “jackpot justice.”

People are finally starting to get the message that these large and often unreasonable awards ultimately come from consumers pockets rather than the deep pockets of insurance companies.

For too long our economy has borne the burden of excessive litigation and resulting awards. A friend of mine was recently injured in an auto accident caused by the driver in the other car. It was a slam-dunk case and the insurance company was ready to pay.

A lawyer member of the family offered to help and wrote two letters in pursuit of the settlement, which the insurance company promptly made. The settlement was $100,000, and the lawyer relative kept $30,000, claiming it was a contingency fee.

There was never any doubt the claim would be paid and the lawyer got $30,000 for $500 worth of work. At least the money was kept in the family–but what a travesty.

Perhaps with the shift in power in Congress and this subtle, but significant, message from the voters, meaningful tort reform may finally become possible. At the very least, it would be a step in the right direction toward lowering health care costs.

Recent articles regarding the practices of fee-based financial planning or management reminded me of an incident that took place about 15 years ago. The Florida Association of Life Underwriters, at its annual meeting, featured a discussion panel consisting of Marshall Wolper, past president of Million Dollar Round Table and Association for Advanced Life Underwriting, Gary Froid, past president of the America Society of CLU, a prominent local fee-based financial planner, and myself.

It was a bit of a one-sided discussion with Gary, Marshall and myself lined up against the fee-based guru. The major thrust of his presentation centered on the notion that a person selling a product paying a commission could not be objective, and therefore the clients interests would likely suffer. Thus, his fee was justified many times over because of the objectivity he brought to bear on the case.

Well, as you can imagine, the discussion back and forth was very lively. But as the event wore on we finally extracted from the fee-based guru an admission that he owned three subsidiary companies–one selling insurance, one selling securities and the other real estate. The audience had no trouble figuring out where referrals from the fee-based plan wound up.

Along the same line we have a local guy who does extensive advertising and has his own radio show regarding financial planning. He is a fee-based asset manager, but unlike the previous guru admits to being paid a commission on products his organization sells. A few years ago he was promoting his seminars, but making it clear that they were for people with portfolios of $2 million or more. When the stock market tanked and it was clear that it was not something that was going to go away in a couple of months his ads pretty much disappeared.

Now he is back–but with a difference. This time his theme is “rebuilding” a portfolio and his minimum for a customer is now a $250,000 portfolio. One cant help but wonder if any of the current $250,000 portfolios were once $2 million portfolios that followed his advice.

I have previously written about my concern that our business is becoming fractured. The drop in membership in the American Council of Life Insurers and the Life and Health Insurance Foundation for Education (LIFE) along with the reduction in National Association of Insurance and Financial Advisors membership is, in my view, alarming. Perhaps an old incident will serve to illustrate my concern.

In the mid-1980s, I was engaged in serious negotiations with Senator John Breaux and Representative Pete Stark regarding the deductibility of interest on policy loans; deduction of personal interest (other than mortgage loan interest) was on the chopping block in the tax reform act then under consideration.

Because this had a really big impact upon our business we argued very hard for an exemption for policy loans. We didnt get a full exemption, but we did get a concession that would have removed the threat from most of our business.

But an ad hoc group of agents and a few companies were not satisfied with this result and went after full deduction of policy loan interest. They hired expensive lobbyists, threw a lot of money around and succeeded in destroying the compromise, and in the end we lost everything.

Some time later I was again working with Pete Stark on another issue of interest to us. Pete, still angry over that interest issue, said: “There is no point in working with your organization, you cant control your people.”

When we are united we can compromise among ourselves and present a solid front to legislators. Splinter groups usually muddy up the water, causing confusion and often anger. A confused or angry congressional committee is dangerous ground and the effectiveness of the ACLI or NAIFA can be seriously impeded in such an environment.

Some say to me, “Dont worry so much, Jack, things will work out.” But then I remember the adage: “Everything will be OK in the end–but if its not OK, then its not the end.”

Happy New Year!


Reproduced from National Underwriter Life & Health/Financial Services Edition, December 30, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.