Perhaps you’ll forgive Robert Miller if he’s a little jetlagged by the time the National Association of Insurance and Financial Advisors (NAIFA) annual meeting convenes in Las Vegas in early September.
Since taking a sabbatical from his New York City-based firm, Miller-Pomerantz and Associates, and beginning his one-year term as NAIFA’s president last September, Miller figures he’ll have spent the better part of 300 days away from his home in New Canaan, Conn., taking care of NAIFA business.
Make no mistake; it takes substantial sacrifice to serve at the top of an organization like NAIFA — especially at a time like this, when large regulatory issues with the potential to negatively impact life insurance producers and consumers alike are being hashed out by decision-makers in Washington, D.C.
As a result of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC is considering whether to impose a single fiduciary standard of care for all advisors, which could endanger the commission-based business model that has helped many NAIFA members thrive under the current suitability standard. Meanwhile, the Department of Labor is potentially overstepping its bounds (in the eyes of many) by moving forward with a re-proposal of its rule regarding a new definition of the term “fiduciary,” which would make it difficult, if not impossible, for an advisor who is compensated by commission to provide advice. And then there’s the likelihood that the tax-advantaged status of life insurance products could once again be at risk, as everything figures to be on the table when lawmakers tackle the federal budget deficit after the election.
Add it all up, and you have an important time for industry advocates like NAIFA. Its leaders must be on their toes and at the top of their game when representing the interests of its members’ business models. Miller sat down with Life Insurance Selling recently to talk about some of the key issues facing NAIFA’s nearly 50,000 members and to provide a status update as to what’s happening in Washington.
Seeking fair regulation
During Miller’s tenure, he has spent a great deal of time and effort working to educate the SEC about the unique business model employed by insurance agents — and why NAIFA is working to protect it. “We have probably the most unique business model in the financial services sector,” Miller says. “Our whole goal is to build relationships with people so that we can really understand what their life is about.”
By dealing with people year after year, keeping abreast of what’s happening with their families, how they’re growing, what’s going on with their business lives, Miller says agents can make sure that if something does happen, all those people are properly insured against any loss and are able to continue on. “And that model is essentially the exact opposite of every other model in the financial services sector,” Miller says.
He also stressed that he doesn’t think NAIFA has been a vocal opponent of the SEC, which is an impression occasionally put forth by financial services industry and mainstream media. “I do think, in time, we have been portrayed as being anti-regulation and against the SEC, but I will say that’s really 100% inaccurate,” Miller says. “We’ve never spoken out against the SEC. The whole thrust of our campaign was, we need to educate the SEC so that when they do regulate — and we are for fair regulation — they regulate us in a way that allows us to keep our business model productive.”
Miller says NAIFA has found that in meetings with the SEC, “We are probably the least understood business model.” So how do they go about helping the SEC understand?
One starting point, Miller says, is by offering some little-known perspective. “You know that Social Security pays out $1.9 billion a day in benefit, which is an enormous amount of benefits, and it is certainly something that helps keep the fabric of this country going,” Miller says. “The life insurance industry pays out $1.5 billion to $1.6 billion a day in benefit, and that’s an enormous private sector payout. Those benefits are paid out to keep families in their world, to make sure that they are able to make their mortgage payment, send their kids to school, without any dependence on the public sector. It’s those kinds of things that we want to make sure that the SEC understood.”
Miller points out that about 20% of all savings in the United States are in life insurance-oriented products and that 75 million American families have purchased insurance products.
NAIFA further argues that its members’ clients are by no means limited to the affluent market, which is a common perception. A 2008 SEC-commissioned study by the Rand Corporation — “Investor and Industry Perspectives on Investment Advisers and Broker-Dealers” — revealed the average investment advisor is serving clients with $100,000 or more of investable assets, says Jill Hoffman, NAIFA assistant vice president of federal government relations. “That’s important, because, according to our research released in December 2010 from LIMRA, the average NAIFA member’s client earns $100,000 or less in household income. So we’re clearly serving a market that the average investment advisor model does not serve.”
Ironically, it was the Rand study that escalated the whole debate about fiduciary standards of broker-dealers and investment advisors. Here is a paragraph from the executive summary of that 228-page report released in 2008:
“Overall, we found that the industry is very heterogeneous, with firms taking many different forms and offering a multitude of services and products. Partly because of this diversity of business models and services, investors typically fail to distinguish broker-dealers and investment advisers along the lines that federal regulations define. Despite their confusion about titles and duties, investors express high levels of satisfaction with the services they receive from their own financial service providers.”
Protecting the middle market
Miller works in a New York firm that caters to a Wall Street clientele, which he readily admits is not representative of most of the insurance agents who are part of NAIFA. Yet he is quick to defend the typical NAIFA member, whose business model would be threatened by added regulatory and cost burdens of a poorly conceived fiduciary rule, as well as the middle-market consumers who he says would also suffer.
“There are plenty of marketplaces in this country where the only professional advice on any sort of financial products is coming from insurance agents,” Miller says. “Many of our agents are licensed to sell securities, and in many small towns across America, there are no financial advisors. They depend on insurance agents to do things like talk to them about the difference between a regular IRA and a Roth IRA. In the New York area there are obviously plenty of investment advisors, but when you go out into rural America, they’re not so common. If there are increased costs and increased standards, what’s feasible to do might be shortchanging that marketplace.”
He says any fiduciary rule imposed on agents needs to provide clear consumer benefits and not drive up costs in a way that would deprive middle-income Americans of investment advice and products that have served them well for decades.
SEC taking its time
As of mid-July, NAIFA’s efforts to educate the SEC about the uniqueness of the business model and potential unintended consequences appear — given the delay in any new proposal being put forth — to have convinced the agency the issue may be more complex than originally thought.
“I take it as a very positive sign that, at the very least, they’re doing a very thorough job of understanding what they’re up against, Miller says. “I really don’t think the SEC wants to intentionally hurt any model of business in the financial services sector. I really do believe they want to regulate as fairly as possible. We really feel that our role in this has been to educate them about our model of business and make sure that when they regulate, they’re going to regulate so that our model of business is still going to be productive for the American public.”
Gary A. Sanders, J.D., NAIFA’s vice president of securities and state government relations, says he thinks everyone would be surprised if there’s a proposal before the end of this year. “If you were talking to us a year ago, we would have fully expected to be deep in the midst of reviewing an SEC proposal by now,” he says. “A delay always has a negative connotation, but I don’t think it’s a negative thing. They’re trying to get it right, and that’s an important thing.”
Before coming out with a proposed rule, Sanders says he expects the SEC will issue what’s informally called a concept release and a request for public comment that could help inform the content of the rule. “There’s still a lot of steps to go in this process, and everybody’s waiting to see when we’re going to hear something from the SEC,” Sanders says.
Tax reform rising to top of mind
Beyond updating NAIFA members on the fiduciary standard issue, Miller says another primary topic of discussion at the annual meeting Sept. 8-11 in Las Vegas will certainly be tax reform — in the form of estate and gift tax limits and preserving the tax-advantaged status of life insurance products.
“The thing that people are starting to turn their attention to is tax reform,” Miller says. “No matter where I go, 2013 has become a red-letter date for tax reform. And without a doubt, the insurance industry is certainly unified and in lock step in terms of the way we feel about tax reform and what we have to do. And I think we’ll probably spend a good amount of time reminding our members that this is an issue that’s really going to come to fruition in 2013.
“I think everybody in the financial services sector is looking at this with a wary eye. You don’t have to be a genius to look at the world around you to see that everything is on the table,” Miller continues. “Many of the same arguments that we have made to the SEC and to Congress in terms of fiduciary standard are going to be used for tax reform.”
Miller says NAIFA has spent a lot of time building relationships with many of the legislators who are going to be working on the issue, and NAIFA will continue to encourage its members to build relationships with their legislators.
“I think the only fair thing you can ask from your legislator is to listen to your story,” he says. “We just want our members to be able to tell our story about who we are, what we do, the impact that we have on the American economy, and what role insurance plays there. Isn’t that all you can really do, is to make sure they understand who you are?”
Miller figures to stay involved in NAIFA affairs beyond the end of his term after the annual meeting, as he’ll remain on the executive committee as the immediate past president. “If called upon, I will be very happy to come down to Washington and help in any way I can,” he says. “But my wife and I have been alone for two days this year. I think she’ll be looking for more of my time.”
For more on the fiduciary standard debate, see: