The Masada Complex

According to the historian Josephus, in the year A.D. 73 a band of trapped zealots faced a terrible decision. After a long siege by the Roman Flavius Silva, it became apparent that Masada, the rock fortress sheltering the zealots, was doomed. The terrible decision then was to decide between death or surrender to the vengeance of Rome. The people of Masada chose death by their own hands.

Masada is one of the great stories of a people’s struggle against tyranny. However, the incident also has been used to symbolize man’s tendency toward self-destruction when faced with hard choices. In a considerably less dramatic sense, but nonetheless important, our industry occasionally seems bent on succumbing to a “Masada Complex” in the choices we make. The choice between short-term prosperity and long-term survival is most often fraught with danger and complications.

The prospect of short-term profit is very appealing, and there are always those willing to jump on the bandwagon, no matter what the long-term costs. Despite repeated warnings from industry leaders, questionable products and marketing strategies do emerge on a regular basis. Over the years I have watched audiences turn a deaf ear to warnings of impending problems and then heard shouts of anger when regulators or lawmakers slammed the door on such schemes.

At such times we often hear complaints that the government is “sticking its nose into our business” and that we as an industry are always in the position of reacting rather than being proactive (whatever that means). The fact is the truth is exactly the opposite. The industry is the creative and innovative segment of the marketplace and government is reactive to us. We create top-heavy pension plans, single premium policy abuses, LILACs, investor-owned policies and on and on–then government reacts. Unfortunately when government reacts the damage is not always limited to the offending product or marketing ploy.

At one time, conventional wisdom held that “we tax ourselves” through our elected representatives. The hope was they would be fair in distributing the burden. In recent times this philosophy has given way to what many term an “adversary system” of taxation. Under this concept government is viewed as the adversary and accepted practice entails reaching for every possible advantage, with government reacting by challenges to the overzealous.

The adversary system has spawned a large body of tax planners, which include lawyers, accountants and financial planners of all stripes as well as insurance people. It should be noted there is an important distinction between life insurance practitioners and most others who work in this area. In reaching for tax advantages for their clients, lawyers or accountants incur little or no downside risk to their practice so long as they have advised the client of the risks involved. Moreover, whether the plan succeeds or fails, the services of this type of advisor are still required to resolve the matter.