Life insurance ‘advice’ in an era of fake news

Advisers who have clients' best interests at heart should insist upon the disclosure of actual internal policy costs and performance.

Fake news is an opinion presented as if it were fact. It’s driven by both the high demand for content to fill the 24-hour news cycle on hundreds of cable channels and the supply of content from anyone with an opinion they can present in a blog or video on social media without regard for journalistic standards that require independently verifying relevant facts.

While fake news can be appealing to those seeking confirmation of their own biases, it fosters division and confusion that hinders debate about our collective best interests.

Likewise, the life insurance industry is rife with “fake reviews” — life insurance policy reviews or so-called “policy audits” that are presented as a factual analysis of policy economics, but instead are hypothetical opinions without regard to the standards of care expected from advisers who have clients’ best interests at heart. The prevalence of fake reviews is similarly driven by the many agents, brokers and companies producing policy reviews in response to the desperate need for information to support management decisions about the last, largest and most-neglected asset on clients’ balance sheets.

While fake reviews can be appealing to clients seeking confirmation of their own biases regarding a particular agent, broker or company, and they can be useful to those wanting to sell a particular or limited number of products, such reviews obfuscate the information that’s necessary for the prudent selection, retention and proper management of life insurance over time. Without actual cost and actual performance information, fake reviews foster division and confusion among advisers, which hinders discussion about product qualities and characteristics that serve the client’s best interests.

The problem is that such fake reviews are considered “misleading” by the Financial Industry Regulatory Authority Inc., the chief regulatory body of the financial services industry. They’re deemed “fundamentally inappropriate” by the Society of Actuaries, the chief actuarial body of the life insurance industry, and the Office of the Comptroller of the Currency, the chief regulator of institutional fiduciaries in the banking industry, has indicated that such reviews are unreliable. As such, fake reviews may also expose fiduciary advisers to breaching their nondelegable duty to exercise reasonable care, skill and caution by relying on “misleading,” “fundamentally inappropriate” and unreliable illustrations comparisons in acceptance or support of product recommendations.

Fake reviews can be distinguished from genuine research by their comparisons of hypothetical premiums, hypothetical cash values and/or hypothetical death benefits for some limited number of products, and their lack of analysis of internal policy costs relative to the universe of peer-group alternatives and/or actual performance of invested assets underling policy cash values. Given the prevalence of fake reviews that lack the information essential for prudent decision-making, it’s no wonder life insurance has been among the worst-performing asset types relative to clients’ expectations for decades.

Advisers who have clients’ best interests at heart, and who want to stay out of harm’s way, should insist upon the disclosure of actual internal policy costs and performance, as is routinely available for most every other asset on clients’ balance sheets. In other words, ask the agent, broker or company to provide you with the pages of the illustration commonly referred to as the “detailed expense pages,” which include year-by-year disclosure of premium loads, fixed administration expenses (FAEs), cash-value-based “wrap fees” (e.g., VUL M&Es if applicable), cost-of-insurance charges (COIs) and performance projections.

At a minimum, compare these costs and performance projections, instead of comparing hypothetical policy values. In some cases, you will be astounded at what you discover. Even better, ask that costs and performance projections be measured against industry benchmarks, as is customary for most other assets. Use this kind of research to attract clients with advice that’s more obviously in their best interests, and get more referrals from other advisers genuinely serving the clients’ best interests, while eliminating competition from those promoting certain products with fake reviews.

The prevalence of fake reviews is clear evidence of the high demand for the information needed to prudently select or retain and properly manage the last, largest and most-neglected asset on clients’ balance sheets. Give clients and their advisers the information they need, and grow your business!

(More: Good luck picking the “best” insurance product)

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 #FakeReviews.