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.
For the rest of this roundtable, see:
The future of commission-based compensation
Hirsch: Do you anticipate that the business will gravitate toward a fee-only kind of compensation structure? And similarly, are you at all concerned about the future of the commission-based compensation structure?
Black: I may be set in my ways, and many people tell me I am. However, I don’t see insurance being sold on a fee-only basis with much enthusiasm. I find it difficult to believe the buying public will appreciate the fact they must still pay the premium and then pay more for the agent’s time.
Something similar happened to travel agents, and look how it devastated their industry. Now we all book our own airline and hotels online. There is only one difference, and that is that life insurance is sold, not bought. While one may make an effort to purchase a vacation online, less insurance coverage will be purchased in a similar way. Yes, the term sales will happen, but buy/sell agreements, insurance for estate liquidity, hybrid life plus long-term care policies, annuities, etc. — those sales will drop dramatically.
That will prove to be detrimental to the middle class and survivors. We all know that, at present, the middle class is under insured. This form of regulation will only make the problem worse, in my opinion.
Plybon: We could be pushed to a fee-based system, but I do not think that is imminent. More than likely, in the short run, we will see more disclosure, including commission disclosure. This is already a fact in some states and some markets, like qualified plans and corporate-owned life insurance — COLI.
Solano: I am concerned because our profession as a whole does a lot of good for this country. Seventy-five million American families own our products and services. One of every five dollars saved rests inside a life and annuity product. Each day our industry pays out $1.5 billion in life and annuity benefits. The government, through Social Security, pays out $2 billion a day. Which one holds an AAA rating and is growing each year? And which one is running deficits and has its ratings reduced?
Generally speaking, I don’t like a one-size-fits-all approach to our industry, which I believe a fiduciary standard will bring. There is far too much ignorance from policy makers, legislatures and commissioners about the good we do and what kind of work I do on a day-to-day basis. And if there are fewer of us, there will be more dependence on our government — a lose-lose proposition.
What a fiduciary standard would change
Hirsch: What is your personal opinion regarding what will happen with regard to a uniform fiduciary standard, and what kind of impact will there be for independent life insurance producers?
Plybon: It is just a matter of time before a regulation will establish a fiduciary standard. It will dramatically increase the cost of doing business and thus increase the cost of products and services.
It is very difficult to see how this would work in the insurance world without a complete change in how products are distributed. Consider a 23-year-old career agent with a career company, new in the business, advising a young couple over the kitchen table. He is contractually required to offer the products of his employer, and yet, 20 years later, he may need to prove that, of all the products and carriers in the market, what he placed that night was the very best available.
Solano: My approach is to work hard and help as many people as I can to achieve a sense of financial peace. In doing so, I will remain in business and serve my community well, no matter what a government agency decides to do.
Black: I’m hoping the fiduciary standard is never implemented. My opinion is that the suitability standard under which we operate is adequate and more than sufficient. I don’t see a need for any additional regulation in this regard, as I believe most agents in the business try to do what is right for the client and offer the best and most efficient product for the client’s particular needs.
The fiduciary standard, if implemented, will do little to help the public. It will spur unnecessary litigation and increase the cost of doing business, driving more agents out of the business. My hope is that the fiduciary standard will never become the law.