For starters, consider these issues:
Who is involved: Today, many financial firms have complex structures holding companies, parent companies, downstream companies and marketing arms. Financial professionals have grown comfortable with the granular meanings of each, but most consumers have not. For example, a company can function as Something Financial, Something Insurance Company or Something Finance. The consumer rarely knows the difference. This fosters the lumping-together habit mentioned above (it?s all insurance, or all financial). Absent authoritative explanations, consumers may grow very uneasy in hearing about the current investigations. The problem is made worse by the fact that many of the general media articles and reports do not clarify the relationships.
Suggestion: Offer a clear, short explanation of the client's own financial providers and relationships versus what is "in the news." This includes the type of products the client has versus what is mentioned "in the news."
Commissions: So-called contingent commissions or payments are at the center of the bid-rigging investigations by New York Attorney General Eliot Spitzer. Do you think that most consumers understand what those are or how they differ from regular commissions? That's highly unlikely, especially since virtually all of the general media reports (and some financial media reports) have so far failed to identify this. It does not take much to imagine that some consumers may conclude that all insurance commissions are "bad." This could take a lot of explaining on the part of advisors, intermediaries and companies.
Suggestion: Spell it out for the consumer what is a standard insurance commission and a contingent commission. Keep it simple and factual.
Who is in charge: That may seem a silly point to bring up. After all, the "regulators" are the ones who are bringing the charges. But the list of regulators and regulatory agencies that are bringing action against or "studying" insurance and financial companies is varied: Spitzer in New York; California Insurance Commissioner John Garamendi; Connecticut Attorney General Richard Blumenthal; the U.S. Justice Department; the U.S. Securities and Exchange Commission; the National Association of Securities Dealers; other state regulators (studying it); and the National Association of Insurance Commissioners (fact finding, etc.). The financial industry understands the differences between these entities, but many consumers do not. So some consumers may make assumptions, perhaps involving their own state, that are inaccurate; and, judging by the "news," they may also assume that industry leadership does not exist.
Suggestion: Provide a simple explanation of regulatory authorities and how the industry responds to such actions. Don't whitewash, but do provide balanced information.
What about me: That's what it's all about. Advisors, companies, consultants and regulators all have constituencies, and when scandal looms, the constituents want to know what will happen to them their policies, their money, their financial security as events unfold.
Suggestion: If you do nothing else, be sure to address this question. Let clients, customers and constituents know what you can, even if it is just "we will keep you informed, as we learn more." Let the people know that you know they are interested, if not concerned. And point to the controls and protections that are in place.
Reproduced from National Underwriter Edition, October 28, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
