In response to pressure from Congress and public reaction to the current turmoil in the markets, the Securities and Exchange Commission’s struggle to find ways to better inform investors is much in the news today. Proposals by the SEC, so far, seem to present more problems than solutions. In the final analysis the objective boils down to providing a way for investors to find the most suitable product when all facts are known and considered. There is enough inherent risk in most investments without having to deal with the unknown.

Today’s discussion is reminiscent of the struggle insurance regulators went through in years past to de-jargonize insurance policies. The industry and regulators were torn between the use of clear language and the legal requirements for policy language. Owners’ manuals and support documents have helped, but they have not quelled the notion that policies are hard to understand. A big part of the problem is that life insurance and annuities, in particular, serve over a long period of time and they are frequently subject to the selective memory of policyholders.

When I was new in the business I often encountered people with policies written years earlier by other agents and where there was a misunderstanding of the terms of the contract. It made me question the thoroughness of the previous generation of agents. But then, as time went by, I noticed that some of my own policyholders had forgotten the details of the policies I had sold them, despite what I believe was a thorough explanation at the time of sale. Time does play tricks on one’s memory.

Because of the nature of the products and the changing needs of policyholders, the industry has always supported full disclosure, but opposed the imposition of suitability standards. But, as the business has developed variable products, which effectively shift much of the risk to the policyholder, the actions of the SEC are spilling over into insurance products, thereby complicating the picture. The foregoing notwithstanding, I still believe we should continue to defend against suitability standards for traditional products.

I have reached the age where I have witnessed how products I sold have played out over time and seen the effect of outside influences on decisions made at the time of sale. Some of my policyholders are even starting to confess their sins.

A case in point. I live on a street that parallels a bridle path formerly used by horses, now the favored path for joggers and people walking to keep fit. Recently I encountered one of my policyholders out for his daily walk. About 40 years ago he purchased a large term insurance policy from me. I say he “purchased” it because that was not what I was recommending he buy. He was a young lawyer with a very good income and I felt that he should have some permanent insurance. He was very much influenced by a college professor when he was in law school and by financial writers like Jane Bryant Quinn, touting their “products du jour,” and had concluded term was the only product to buy. As much as I tried I could not convince him to convert any of the term insurance in the succeeding years. On the bridle path we chatted and he confessed he had been mistaken. Now in his 70s, he said the term insurance is now gone and he didn’t save as much as he had planned. He also chided me for not pushing him hard enough.

I also remember another situation where suitability could have been an issue. The policyholder was a 52-year-old nurse anesthesiologist who had inherited a modest amount of money. She wanted to purchase an immediate fixed annuity with the inheritance. I questioned her decision at the time for it seemed to me she was a bit young to be committing to a life annuity. However, she was determined and said her temperament was such that she did not want to read in the paper each day that her fund had gone up or down. She was content with the income it produced and did not want to assume the risk of reaching for more. The last I heard she was still living and approaching age 90.

I had a similar experience with my Aunt Ruth who retired early at age 55 from Exxon when they moved her office from Charlotte to Houston. She purchased an annuity from me with part of the buyout she receive from Exxon. Again I asked her to consider the alternative because of her age, but she was adamant. She lived until age 91 and was content with her steady income through 432 monthly payments that came without fail.

I am also reminded of a local professional, a close friend, who for years resisted my efforts to interest him in cash value insurance. Finally, out of friendship more than a conviction, he did buy a small whole life policy. He worked until he was in his 70s, not by choice, but because he could not afford to retire. Today, all he has left is the whole life policy I sold him. A few years back, his son sought my counsel. He said, “I don’t want to make the same mistake my dad did.” I referred him to a mutual friend, a good agent with a top company, who set him up with a well-balanced plan.

The point of all this is that an insurance-buying decision is often influenced by many factors, some of them carrying more weight than our own persuasion. With selective memory a constant problem, it would be wrong to hold an agent accountable years later for a bad decision.

But in the end, the most unsuitable plan is “no action.”