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Life Health > Life Insurance > Term Insurance

The B Team: Insurers Delay Fiduciary Standard

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It seems I may have been a bit hasty in my assertion that SIFMA was behind the amendment by Senator Tim Johnson (D-South Dakota) that back-burnered the fiduciary duty out of the Senate’s version of financial services reregulation. Apparently, it’s the insurance lobby that has the good Senator’s ear. To my mind, that’s both good news and bad news.

The bad news is that, despite AIG’s problems, the insurance industry emerged from the 2008 Mortgage Meltdown with far less egg on its collective face than did its Wall Street counterparts. Which means that the larger insurers undoubtedly still have considerable political capital in Washington which they have never been bashful about using when they feel threatened. As you may have heard, the insurance industry does not like this whole fiduciary thing one tiny bit.

The good news is that over the years, the insurance folks have never really seemed as, well, sophisticated as the securities guys. This rereg battle seems to be no exception. For example, here’s how Thomas Currey, president of the National Association of Insurance and Financial Advisors (NAIFA) explained his industry’s opposition to a fiduciary duty, as quoted in the Washington Post on March 7: “Most of us operate under contracts with a broker/dealer or insurance company, and you have an agreement that you’re going to look out after the interests of the company.” A fiduciary duty “puts a person with a contract like that in a really untenable situation. There is really no way you can equally serve those purposes.”

Oh, really? Is it just me, or is it hard to tell which side Mr. Currey is supporting here? I can only assume he believes this argument supports dropping an omnibus fiduciary duty for all financial advisors. But can you think of anything that argues more strongly in favor of such a duty than the fact that an agent can’t “equally serve” the company they work for and their client’s best interest?

Now, I’ve said it before and I’ll say it again: I don’t have any thing against sales people. Virtually all industries have them, and they’re essential to making our competitive economy work. And of course, some of my best friends are sales people, yadda, yadda, yadda. My problem is when salespeople want “customers” to think they are “advisors” with a duty to put their “client’s” interests first, when they have no such duty. Some people might say that’s tantamount to fraud.

Ironically, neither the House nor Senate versions of financial services reform legislation would require that a broker or insurance agent with a securities license become a “fiduciary advisor,” as long as they didn’t offer “investment advice.” So my question for the insurance industry is: “Why don’t you just have agents tell their customers; ‘We don’t work for you, we work for our insurance company,’ in no uncertain terms?” The answer, of course, is because they wouldn’t sell much. Isn’t that a pretty clear indication that there’s a problem with the way they currently do business?


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