One might describe an overly-ambitious individual as someone who wants to have their cake and eat it too.
There’s nothing wrong with being ambitious, of course.
However, there is something wrong with insurers marketing themselves as financial advisors, when they’re really selling preferred products. Or at least that is the view of the Consumer Federation of America, the Department of Labor and a 2015 White House report.
Companies including Prudential and USAA, trade organizations like Insured Retirement Institute, American Council of Life Insurers, the National Association of Insurance and Financial Advisors and the many financial services firms that recommend them are all getting called out by the Consumer Federation of America (CFA).
The CFA says these major financial services firms involved with retirement planning, including insurance brokerages, corporations and others, are representing themselves differently to consumers than they are to the federal government.
Heavyweights of the insurance industry are attempting to overturn the Department of Labor’s fiduciary rule for retirement advisors, a rule compelling them to “act in the best interest of their client”.
In other words, retirement advisors are required to recommend the best policy, not the most profitable one.
The arguments on behalf of the insurance industry made in court to the Department of Labor are that insurance agents, brokers and professionals in general are salespeople, not advisors and therefore shouldn’t need to meet the fiduciary standard.
Salespeople calling themselves financial advisors, even as they’re incentivized for selling proprietary products, has become “pervasive, the rule and not the exception” argued Barbara Roper, director of investor protection for the CFA.
“Some of them really are advisors, some of them really are just salespeople,” Roper said.
“But the point is if the legal argument is right then they’re engaged in a massive deception of the investing public in how they market their services. If the marketing material is right, then the legal argument is a fiction.”
Roper said she wants to believe insurance professionals and her point “is not to say these firms are lying, if they’re telling the truth, then their trade association is lying in court.”
The acts of having cake and eating cake, one could argue, are paradoxically at odds.
A 2015 White House report titled “The Effects of Conflicted Investment Advise on Retirement Savings”
estimated salespeople posing as advisors cost retirees $17 billion every year by suggesting more expensive policies than necessary.
“It preys on people’s vulnerability, it preys on their trusting nature and their real need to rely on an expert to help them with these complex and vitally important decisions,” Roper said.
“We’re supposed to let them prey on vulnerable consumers because it’s good for the economy? I just don’t buy it.”
If the financial services companies lose their case with the Department of Labor, insurance professionals with clients planning for retirement might find themselves under more pressure to provide transparency for the products they sell.
If they win, if the Trump administration delays or it repeals the Department of Labor fiduciary rule, then there’s still one way consumers could differentiate between salespeople and advisors: a fiduciary oath.
Asking brokers or agents to sign a fiduciary oath, Roper said, is a litmus test to determine whether a professional is willing to legally bind themselves to fiduciary advising responsibilities.
Roper said she recommends insurers “embrace the role that’s being marketed” and understands some firms are already moving in that direction.