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Industry Spotlight > RIAs

The survival guide

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This fall has been something of a nightmare for many in the industry. A single New York Times article painting the senior advisor market in a dubious light helped prompt a hearing before the Senate’s Special Committee on Aging. Many top producers have found themselves, their practices, credentials and ethics in the spotlight.

Senior Market Advisor begins a series on suitability and credentials which will appear in various 2008 issues of the magazine. The series will look at this recent round of self-examination in the senior market and offer some positives on what you can do to avoid the pitfalls, strengthen your own practice and prepare for the future – and provide insight on what carriers and regulators are up to.

Negotiating the jungle of credentials: CSA’s route

Despite what the mainstream media might have you believe, most professional credentials are not found at the bottom of a Cracker Jack box – nor can they be downloaded off a Web site, or ordered from the back of a magazine. The veracity and intensity of time required to obtain a credential may vary, but the cloud of controversy that has come over those organizations which administrate a variety of professional credentials is, itself, cause for concern.

“There’s an element of presupposition that we need to change something because there’s something wrong. And I don’t believe there is,” says Dan Danbom, director of communications for the Society of Certified Senior Advisors, which oversees the CSA designation. “All we can do to have a good product is to follow all the laws and regulations. And that’s what we said when we testified before congress: There should be a national standard for designations that’s consistent across all states. That said, the burden of proof is for regulators to show that such a standard will reduce fraud against seniors. I don’t think there’s any evidence of that.”

Among the many acronyms filling advisors’ business cards, the CSA designation has received extra scrutiny due to its emphasis on marketing and senior psychology, but Danbom says he feels all the uproar is something of a ruse.

“Talk about credentials is a red herring. I think this entire crisis is really about equity indexed annuities and, maybe, an underlying belief that it’s unfair to market anything to seniors in any way – like they should be set aside in a bubble and not approached at all. And maybe it’s all a blessing in disguise. If a regulator can say to us, ?this is the standard by which credentials will be set,’ that’s all we want … the clear rules of the road. But being vague and subjective about it is just not fair and makes no sense.”

Furthermore, Danbom, who was quoted in the New York Times article which precipitated recent senate hearings, notes that neither FINRA, the SEC nor state regulators have made public the credentials held by those they have charged with infractions.

Carriers getting proactive

Industry giant Allianz has learned from experience that making a concerted effort to carefully and appropriately sell its products and make sure its representatives always do the right thing … well, that’s just good business.

The company recently took the unusual effort of appointing a Chief Suitability Officer to help oversee the appropriateness of sales of its products, part of a group of actions Allianz has spearheaded to enhance consumer confidence in its offerings and its reps.

“We’ve been ahead of the curve in implementing changes, even if you look back six years,” says Allianz spokes-person Hubertus Kuelps. “We made mandatory that the customer sign our ?Statement of Understanding,’ a point-of-sale disclosure document which clarifies the product that’s being sold in easy-to-understand language.”

The suitability officer will be calling every client over the age of 75 to make sure that they got what they wanted.

Allianz’s other measures include a rigorous suitability process which sees the financial information of every customer on every application run through a computerized “rules engine,” which determines the product’s financial suitability for the consumer.

“Our complaint rate is very low, but if even one customer complains, that’s not satisfactory,” says Gary Bhojwani, Allianz CEO and president.

Bhojwani was the only industry head to speak at the Senate’s Sept. 5 Special Committee on Aging hearing, explaining Allianz’s efforts and putting them in perspective for Senator Herb Kohl (D-WI), the committee chairman. U.S. Securities and Exchange Chairman Christopher Cox also testified.

A week after the hearing, Old Mutual Financial Network announced its own policy changes. The company will now only permit its independent producers to use a specific list of designations, saying that it “opposed the use of designations obtained from credentials programs with only limited coursework or abbreviated instruction.” Allianz, ING and Aviva have followed suit with their own lists of recommended credentials.

To RIA or not to RIA

There comes a time in many advisors’ practices when clients’ needs beg an extremely dangerous question: How do I sell annuities if I’m not licensed to do so, or can I use money from a 401(k) or a money market to do so?

One solution to bridging that gap is to work towards becoming a Registered Independent Advisor, a broader credential which offers more flexibility but carries much more regulatory visibility.

“Holding yourself out as a ?trusted advisor’ is the root of the issue – people want to work with someone who gives you unbiased information,” says Chuck Lucius, founder of Registered Independent Advisors LLC in Brainerd, Minn. “And that leads people to believe that insurance sales and financial products come together in one string as ?financial advisor’ – but that’s not at all a general term. Regulators look at this and they say the industry has led people to believe that you can simply call yourself a financial advisor – so, in a way, the industry has created its own issue.”

Lucius’ advice is simple: the designation he advocates may save your bacon. “If you’re going to hold yourself out as an advisor, you better be one – especially if you’re a high-profile producer who’s doing seminars and holding other titles. And now that you are one, and you’re legally registered with the state to use that title, you can accept your fiduciary capacity, you’re hired by the client and you’re no longer selling product – they know that you’re a knowledgeable buyer, sitting on their side of the table.”

Blogger David Macchia, on the other hand, says that the RIA path may not be for everyone, especially with its fiduciary requirements. Financial advisors, he says, have to essentially become their own compliance officers and be prepared for significantly reduced commissions in order to meet the rules.

“If you can do both, it can be a good thing if you’re willing to do an extreme makeover to your career,” he says. “But are you prepared to transition from 10 percent to 1 percent?”

The Iowa Way: Officials in the industry heartland are setting standards that will affect the way you work

As the de facto headquarters for the financial planning industry (five of the top 10 companies are Iowa-based and insurance is its second biggest domestic product), the Hawkeye State has long led the rest of the country in establishing rules to help oversee the way that products are sold.

And as Jim Mumford, first deputy insurance commissioner for the Iowa Insurance Division says, what began as an effort to help protect the public from the frivolous dissemination of indexed annuities has spread to all levels of annuities sales – and the rules are beginning to catch on across the U.S.

New requirements, for instance, will demand at least four hours of continuing education credit for advisors independently selling products, as well as encouraging companies to closely follow the guidelines of the Insurance Marketing Standards Association.

“It’s taken a long time for other states to glom on but there’s over 23 now that have followed our example. I’m just disappointed with the states that haven’t taken a closer look at what we’ve done.”

Tales from the frontlines

We asked members of our magazine’s advisory board what they do to reassure their clients and prospects of their qualifications to sell insurance products; here’s a few of the responses:

I thoroughly explain everything I do with my clients and prospects before we take any action. I use a three-appointment process so I can take my time before I make any recommendations. I answer any and all questions before and after I make a prospect a client. I’m 100 percent up front about the products that will be used to solve their respective problems.”
- Marlon Wilkerson

While I often explain the meaning of my credentials, I do not focus attention on them or make claim that they alone give me a specific expertise. I allow my presentation of valuable information at my seminars to portray my expertise. My fanatical commitment to client service and my sincere concern for the welfare of my clients generally speaks for itself.”
- David Sears

Several clients have raised questions about their investments and policies because of magazine articles. I have had to spend more time explaining my background and experience as well as how these news articles either do or don’t apply to them. I also have increased my contact with current clients, even if it is just a phone call to say hello.”
- Lonnie Korody

We have dropped the use of the CSA designation and distance ourselves from even a hint of unsuitability. We no longer work with or advise people over the age of 80. Sadly those are the people that often need the most help but I am not willing to put myself in regulatory crosshairs. We have also gone to an RIA platform so that we offer every financial solution available. We have moved completely away from a B/D platform as I feel they are a part of the problem and only seem to be capable of pointing the finger at others.”
- Sam Duell

I am pursuing the Series 65 license and establishment of my own RIA. I have always assured my clients of my approach to financial issues, including the fact that I’m commissioned by the companies I recommend for annuity and life products. I have backed away from public seminars and limit my group work to small classes where the intimacy helps assuage any concerns newer folks may have. I refuse to promote ?product’ at any public gathering, large or small, but will speak to concepts and encourage questions, along with offering the inevitable 45-60 minute ?free’ or complimentary consultation. My approach is always educational and filled with choice-making. I often jest that I never sell anything but that people buy a lot of what I have to offer.”
-David Smith

Senior Market Advisor will continue its examination of credentials and suitability in upcoming issues. Additional resources are available at www.nafa.|us/Resources2.asp

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