A common misconception held by broker-dealers about fee-only financial advisers is they don’t take care of their client’s insurance needs because they don’t sell insurance.

Many of these BD-based advisers are gearing up for the fiduciary standard by becoming fee-based — charging fees on the brokerage side and still selling insurance products. To me, this is a mistake. The advisers who will fare the best in the fiduciary landscape are those who give up sales of any kind, including all types of insurance. By becoming truly fee-only, you can actually do a better job of meeting your client’s insurance needs.

Life Insurance and Annuities
Life insurance and annuity sales are the elephant in the room when it comes to the fiduciary standard. Other than the use of annuities and life insurance in retirement plans, the insurance companies are notably absent from the fiduciary discussion.

In my experience, the majority of egregious breaches of client trust have been around expensive insurance products positioned as “investments,” without a full explanation of the fees and complexities involved in eventually accessing the funds.

Life insurance is an important component of a client’s financial plan. Whether a client needs term or permanent life insurance depends on family needs, the desire to leave a legacy, estate planning issues, and asset protection needs.

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As planners, we help clients determine the amount and type of life insurance they need then implement their decision by shopping for the appropriate product. Quotes are obtained from various agents and the majority of the time, low-load products are the most appropriate.

With permanent insurance, we consult a fee-only insurance actuary to help design the product and make certain the client is getting the best structure at the best price to fit their need. This saves clients a significant amount in commissions they would have paid to brokers who may have not structured the product in the client’s best interest.

Making annuities great again? Promotional hat seen at FSI OneVoice conference.
Making annuities great again? Promotional hat seen at FSI OneVoice conference.

Our work with annuities mostly involves getting clients out of costly products. We analyze the underlying investments, weigh the surrender charges and riders, and if appropriate, work with an agent to exchange the annuity to a product with no commissions, lower fees, no surrender charges and inexpensive investment options.

Immediate fixed annuities and qualified annuity longevity contracts are used when appropriate, although the current interest rate environment detracts from their attractiveness.

Disability and Long-Term Care Insurance
Disability and long-term care insurance needs are analyzed at the beginning of a client engagement. If the client has a current policy, we compare this with new coverage, including coverage available through specialty societies.

Through the years, we have cultivated a number of independent agents who provide objective advice on client’s current policies, group coverage, and alternative options. We have developed a trusting relationship and know they will help us make the best choices with the client.

Life insurance is an important component of a client’s financial plan.
Life insurance is an important component of a client’s financial plan.

Occasionally, a client will introduce us to an agent they currently use. Their agents usually appreciate our involvement — since we have no financial incentive to have the client purchase insurance, when we recommend it, the client follows through with the purchase. The agent made a sale without having to sell and our client gets the coverage they need. Agents love us for this.

If an agent isn’t doing right by the client, we gently share our thoughts with both the agent and the client. Either the agent straightens up, or the client terminates the relationship.

Each year, we revisit the coverage. If needs change or if new products are a better fit, we help clients adjust their policies. The agents we use keep us apprised of the changes in the insurance landscape. Clients appreciate our continued attention to their insurance needs without their prompts for a review.

Property and Casualty Insurance
We review each client’s car, home, business and umbrella coverage. Then we discuss the coverage with their agent. Often, the agent is not aware of specific situations that warrant a change in coverage or that the client lacks adequate coverage.

Because we do not sell insurance and act as a fiduciary for our client, clients take our recommendations seriously and tend to implement the changes we recommend. Their agents are often wary at first of our involvement, but quickly appreciate what we bring to the table.

The Primary Care Model of Financial Planning
I’ve often lamented that planning should follow the ideal medical model — a client has a primary care practitioner who understands their goals, big picture of their life and the nuances to their particular situation. The financial planning practitioner can provide the majority of their client’s needs. However, when a complex situation occurs, they should involve the help of specialists — in the case of insurance issues, they consult an insurance agent.

The current landscape of financial services has brokers, insurance agents, attorneys, accountants and a myriad of others acting as financial planners trying to be all things to all people. Their offerings tend to lean heavy on their area of specialization and they compete with each other instead of working together in the client’s best interest. Respective of where the regulatory environment lands this profession, clients see the value of working with a fee-only fiduciary and engaging specialists as needed. With time, this model will grow and the specialists such as insurance agents who work with fee-only fiduciaries will thrive.

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Carolyn McClanahan

Carolyn McClanahan

Carolyn is a CFP and M.D., and is the director of financial planning at Life Planning Partners in Jacksonville, Florida.