There are a number of threats to the life insurance business that hover over us and never seem to go away. One that’s been around for many, many years is the threat of taxation on the inside buildup of values within an insurance policy. Another more recent concern is the very real potential of the business having to adapt from a suitability standard of care to a fiduciary standard.
Regular readers will recall that Life Insurance Selling’s editor Brian Anderson has looked at this issue and its ramifications in a series of fine commentaries over the past year or so. And as Brian points out, even though the threats posed by a shift to a fiduciary standard are not immediately imminent, they are serious and wide-ranging enough that producers ought to be thinking about what the potential change means for their business.
In this month’s roundtable, I talked with three of the more proactive and productive producers I know about the potential for a fiduciary standard, and how they see it affecting their — and, by extension, your — day-to-day operations. Sharing their insights this month on the fiduciary standard and how they are preparing for potential changes are the following top producers: William H. Black Jr., CLU, ChFC; Robert B. Plybon, CLU, ChFC; and Adam A. Solano Jr.
William H. Black Jr., CLU, ChFC, has been in the life insurance and pension consulting business for 34 years. He specializes in custom-designed qualified plans for the closely held business and professional practice, as well as custom life insurance programs. Black has spoken nationally and internationally on the topic of qualified plans. He is a 15-time Top of the Table (TOT) qualifier and life and qualifying member of the Million Dollar Round Table (MDRT). Qualified to give continuing education to CPAs in 47 states, Black is a sought-after speaker.
Robert B. Plybon, CLU, ChFC, is CEO of Plybon and Associates Inc., in Greensboro, N.C. A 37-year MDRT member with six Court of the Table and 23 Top of the Table honors, he is also a former MDRT president, as well as a former president of the Association for Advanced Life Underwriting (AALU). He is a past chairman of the LIFE Foundation and The American College board. Plybon was also the 2010 recipient of the Huebner Gold Medal Award from The American College.
Adam A. Solano Jr. is a 16-year MDRT member with six Court of the Table honors. He leads Lakeside Financial Group in Grayslake, Ill., where he provides comprehensive financial strategies or specific needs planning for main-street businesses and families. He is a former president of NAIFA – Chicago and a frequent speaker to industry groups and associations on “whole person” topics.
Keeping an eye on an approaching storm
Q: Many people in the life insurance business are still anticipating that, eventually, there will be a fiduciary standard for producers in their relationship with clients. Do you believe that standard will indeed eventually be required, and what will that mean for the life insurance business model with which we’re all familiar? And is this something that you are following closely?
Adam A. Solano Jr.: I don’t know if it will ever be implemented, but I follow it closely. Fiduciary standards have been implemented in Australia and England, and from what I hear from my colleagues that live and work there, it hasn’t improved the marketplace. Instead, it has dramatically reduced the number of agents and advisors. So my question to my legislature has always been, “What good is a fiduciary standard when it has reduced the number of agents and advisors in a society that desperately needs more planning and help?”
William H. Black Jr., CLU, ChFC: This is not something I follow closely, but something of which I’m aware. Frankly, if one puts the client’s interest first, as we all should, there is little with which to be concerned. However, anyone can allege malfeasance, and the cost of defense is quite high. Many people use the threat of litigation to beat the agent into submission, and it is that threat that is disconcerting.
At present, we have a suitability standard. The products we sell must be suitable for the client. My opinion is the suitability standard is adequate and proper.
To implement a fiduciary standard will likely open the agent’s work to much second-guessing and “Monday morning quarterbacking.” Additionally, many people believe the imposition of a fiduciary standard on agent advice could have unforeseen and devastating results — forcing agents to abandon commission-based compensation for fee-only advice. Most clients, in my opinion, prefer the commission-based approach, as they pay the premium one way or another, with the carrier paying the agent. The alternative would be the client paying the carrier and an additional fee to the agent. And how do you put a price on the service rendered? It adds an entirely new facet to the business.
Robert B. Plybon, CLU, ChFC: We are closely monitoring this, as it could dramatically impact our business. I do believe there will ultimately be a fiduciary standard, as regulators already have the authority. Implementing a fiduciary standard to the life insurance business would have adverse effects on distribution systems and would cause carriers and producers to rethink their contracts. In addition, proving the absolute best products were sought for their clients would be difficult for advisors. And an effort to do so would dramatically increase pricing across the board.