I've never seen a better time to advise clients about life insurance. With insurers increasing costs with increasing frequency and performance consistently disappointing clients' expectations for decades, clients need help with this last, largest, most-neglected asset on their balance sheets like never before. It's the easiest way to get new clients and develop new business (and not just life insurance business).
Insurers also need advisers like never before. Sales techniques of days gone by are now either forbidden (e.g., STOLI, 419 plans, 412(i) plans and soon maybe Section 79 plans), limited by regulation (e.g., IRS Notice 2001-10 final split dollar regulations, IRC 409A non-qualified deferred compensation plan regulations and rules against illustration comparisons), or no longer attractive in the current environment where tax-free death benefits aren't needed to finance estate taxes and lower income taxes lessen the benefit of tax-deferred accumulations. The days of bundling some product with some tax or financing scheme are behind us.
And litigators, regulators, the media and technology are all paving the way for life insurance advice. Recent lawsuits provide clear guidance for the differences between life insurance sales versus life insurance advice. A recent study also reveals many insurance companies nonetheless still market their representatives as trusted advisers, but then confess in their legal efforts that their representatives are actually commission-based salespeople.
With clients' needs for advice about these assets already on their balance sheets that are in desperate need of management, the need for insurers to find new ways to reach clients, and the increasing awareness about life insurance advice created by increasingly frequent lawsuits, regulations and media coverage, I've never seen a better time to advise clients about life insurance. To date, wealth managers and fiduciaries and even life insurance brokers have struggled to offer life insurance advice for a variety of reasons, namely:
• Agents/brokers have struggled because prevailing industry marketing practices are not consistent with, and in some cases actually violate, the prudent investor principals near and dear to wealth managers and fiduciaries;
• Wealth managers and investment advisers struggle because they have not been able to look up the pricing and performance of life insurance products the way they can for most every other type of asset they manage;
• CPAs, tax attorneys and, particularly, trustees struggle because they lacked standards for the prudent selection and proper management of life insurance as an asset like they have and follow for most every other type of asset in their care.
In response, a group of industry leaders gathered at West Point to formalize best practices standards for life insurance advice. In attendance were representatives of nearly every profession who has clients who own life insurance, to include: one of the largest trust and estates law firm; the largest third-party administrator of trust-owned life insurance; the largest association of financial planners; a leading financial planning university; and, most of the largest independent distributors of life insurance. These standards apply the same universal decision‐making framework to life insurance already widely-accepted in the investment business.
The need for, and opportunity to provide life insurance advice reminds me of the mid-1980s, where many a stockbroker turned investment adviser and built terrific businesses by guiding clients through a proven decision making process and to solutions in their best interests. Competition in the investment advisory business is now intense. The life insurance advice business is in its infancy. Grow your business using the West Point Draft of Best Practice Standards to similarly advise clients about this otherwise last, largest, most-neglected asset on their balance sheets.
Barry D. Flagg is the founder of Veralytic Inc., an online publisher of life insurance pricing and performance research, and product suitability ratings. Follow him on Twitter @BarryDFlagg.