Two weeks ago on the blog, I suggested a fiduciary standard for life insurance advice sufficiently rigorous that no life agent or broker can meet it. Their dependence on commissions for compensation and, more so, the restrictive nature of the life company and securities licenses they hold inevitably stand in the way.
I pointed out that the sellers of securities products, such as variable life insurance and annuities as well as individual securities and mutual funds, are held to a much less demanding “suitability” standard in dealing with clients. It is a pretty nebulous criterion, and the aggrieved investor has a very difficult time proving a negative – that the recommended investment was not suitable for the investor’s circumstances.
Even so, the leading organization for life insurance agents, The National Association of Insurance and Financial Advisors (NAIFA) went on record this week opposing even the minimal suitability requirement for their members. They claimed that the May recommendation of the Financial Industry Regulatory Authority (FINRA; formerly, the National Association of Securities Dealers – NASD) would duplicate the regulatory activity of the states.
The claim seems dubious at best. Even to call it laughable would be kind. State insurance department regulations imposing any sort of suitabilty requirements either don’t exist or aren’t enforced. If you hae any experience to the contrary, we’d certainly like to hear from you.
One right-minded, contrarian agent quoted in the online Wall Street Journal article on the subject (”Compliance Watch: Suitability Standard Gets Chilly Reception”) had it right when he said, “For too long, too many sales have been based on questionable suitability only so the rep can make a commission.” Sad, but true. Now what do we do about it?
