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Should Insurance Agents Provide Financial Advice and Services?

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(Photo credit: McBeths Photography)

Over the last few weeks I’ve had the opportunity and fortune to work with graduate students on a number of financial and ethical issues presented to them in their classes. Of the many issues presented there was one issue that we discussed (argued) over more than any other topic; it was the suitability versus fiduciary standard.

Most of our readers know that our firm not only follows but embraces the fiduciary standard where we are legally bound to act in the best interests of our clients.

This brings me to the title question of this piece – should insurance agents provide financial, advice and or financial services?

Most, if not all insurance agents are held to the suitability standard which means that as long as the product fits certain aspects of the client profile it’s therefore suitable and the agent can sell the product. Often the word suitability is synonymous with sales – meaning that suitability is a sales standard.

So what happens when this standard is also allowed when agents who are securities licensed start selling financial products such as mutual funds, variable annuities, and variable life insurance? Is the same standard of care that’s good enough to sell auto and home insurance all that’s needed to guide a client’s retirement funds? I would argue it isn’t.

The other question this raises is can an insurance agent be a servant to two masters? That is, can they effectively work with clients on their property and casualty insurance needs and their retirement portfolios? Again, I would argue no.

Early in my career I owned a property and casualty insurance agency. Most property and casualty (P&C) companies have to focus on their “bread and butter” which is auto and home insurance with a bit of life insurance tossed in. I was licensed to sell mutual funds as well and had a small group of clients that I worked with in these areas. However, my main focus had to be P&C. By contract, I had certain auto and home policy numbers to hit or my business would be in jeopardy of closing. How could I focus on meeting the retirement needs and plans of my clients when I had to worry about cross-selling auto and home policies? I couldn’t. I’m not saying others couldn’t as well – it just becomes extremely difficult.

Another reason why I couldn’t effectively work with my clients’ investments was because of the contract I had with the carrier I was affiliated with. By contract, I was obligated to put the interests of the insurance company first; my clients’ interests second. Note: This is how most insurance companies with captive agents operate.

I can remember sharing with a company VP my plan to study and sit for the CFP® exam. His exact words were, “That’s great – but if you pass the exam, you are not allowed to advertise you’re a CFP®.” When I asked why, I was told that because of my contract I could not be a fiduciary – something the CFP® requires in financial planning engagements. Note: It was because of this that I sold my agency and made the gradual move to the fiduciary model.

So to answer my title question my answer is no. The reason is self-evident: If an insurance agent is required by contract to not act in the best interests of their clients, then how can clients know that they are getting what’s best for them? In addition, many captive agents can only sell the products of their respective company. Again, how can this be in a client’s best interest if they are limited to a handful of proprietary (and often much more expensive) options?

Knowing that I have whacked a hornet’s nest with some of our readers (the insurance agents), I’m open to the thoughts of all of our readers. What do you think? Another way to look at this is; what standard would you want if it were your finances and investments?


  1. Dan says:

    How about a situation like this: I would be working for an independent wealth management firm and getting my insurance licenses could help add value to the client base. I would essentially already be a fiduciary because that’s what our firm is. I also would be independent of any particular carrier, thereby I would not be tied to any contracts or sales quotas. I then could sell based on the needs of the client exclusively. Lastly, I obviously would be doing other things in my role, like financial planning, and would be paid more on a ‘salary-plus’ basis. So pretty much my sole concern is to just add-value to what I already do as a financial planner. What about that scenario?

    1. sraskie says:

      Thanks for taking the time to write. The key word is fiduciary. If you’re held to that legal standard, and would act in the best interest of your client, then I feel that’s reasonable. Disclosure: I hold all state insurance licenses as well (required in IL as an RIA). And the fee & commission set up is not wrong either (assuming that’s what you meant by “salary-plus”.

  2. DIY Investor says:

    Conflicts are everywhere. Tell most fee only RIAs that your biggest fear is having your portfolio decimated in a market sell off and should you therefore put a portion of your assets in a single premium immediate pay annuity and most will argue against it.
    Tell them a big goal is to pay off your house and they will try to argue against it. The reason is simple – both actions reduce their assets under management.
    The only way to get advice that truly conforms to the fiduciary standard is to get hourly consulting and even there you have to be careful given referral situations etc.
    Good informational post!

    1. sraskie says:

      Exactly right. We had a client ask where they could get a guaranteed rate of return with no risk and we told them to pay off their debt and not have us manage their money. They looked at us dumbfounded. No one had ever told them that before.

  3. John says:

    Thank you for the quick response and for agreeing with me. To be clear though, albeit the design is under the umbrella of a captive agency, it is not strictly designed as such. To put it simply – a hybrid model would be a much better description. In addition, I am also a registered investment advisor with the obligation to act on my clients best interest. No where in my contract am I prohibited from acting as a fiduciary with my clients; therefore allowing me to offer unbiased advice accordingly without the risk of termination.
    Thank you again for your reply…

    1. sraskie says:

      That’s great to hear and it sounds like your clients are lucky to have you. Thank you again for the comment!

  4. John says:

    First and foremost, thank you for all of the valuable information. Great content.
    As to this column though, I have some some opposing thoughts. As a captive agent myself, I couldn’t agree with you more. However clarity is essential when making your argument. The setting for your platform seems to surround the P&C broker. and perhaps being a jack of all trades and master of none adds leverage to your thought process. In contrast though all Insurance brokers/advisors etc., are not P&C brokers. Being a ChFC, I happen to follow a strict code of ethics, and do maintain a fiduciary responsibility with my clients. In fact, proprietary plans are not even part of my vernacular as I maintain an unbiased opinion when it comes to their planning. Unless of course a company sponsored program solved the objective and made sense to the client. On that note, perhaps curtailing the subjective thought on giving an adamant NO to “should Insurance agents provide financial advice” is in order…
    Thank you.

    1. sraskie says:

      I appreciate your thoughts and comments, John. And you’re right, it was mainly geared towards P & C agents that are jacks of all trades. However, let me propose this question to you… How can you be a captive agent and a fiduciary at the same time? By definition the two cannot coexist. That is, do you not have a contract that prohibits you from doing so?

      I also hold the ChFC designation, however that designation does not require a fiduciary standard. It does have its canons and its pledge but nowhere in those does the word fiduciary or even terminology relating to a fiduciary come into play.

      Likewise with licensing. I would be willing to bet if you approached your company to get the series 65 they would reply with an adamant no since that license requires a legal fiduciary responsibility.

      I appreciate the fiduciary role you say you take with your clients. I am concerned that should you mention that to your parent company that you may be out of a job very quickly; as this would suggest that you may be turning away business your company could write but it wasn’t in the best interests of your clients. Thus, you’d be in violation of your agency contract. I hope I am wrong.

      Again, I sincerely appreciate your comments and post and please continue to comment on anything that we write about.

  5. Steve says:

    The same thing is true of stock brokers, who no longer refer to that title. They are now financial advisors, financial planners, Vice Presidents , partners, CEO , etc. They can call themselves anything they want. They are salesmen, yet their clients, for the most part, do not know that. Their clients do not know they are not fiduciaries. Their clients think they are doing well, yet many, if not most, do not even know. They don’t benchmark, and many don’t get performance statements. As long as the account is up, they are happy.

    1. sraskie says:

      A very excellent point, Steve. Thank you!

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