There are a number of threats to the life insurance business that hover over us and never seem to go away. One that's been around for many, many years is the threat of taxation on the inside buildup of values within an insurance policy. Another more recent concern is the very real potential of the business having to adapt from a suitability standard of care to a fiduciary standard.
Regular readers will recall that Life Insurance Selling's editor Brian Anderson has looked at this issue and its ramifications in a series of fine commentaries over the past year or so. And as Brian points out, even though the threats posed by a shift to a fiduciary standard are not immediately imminent, they are serious and wide-ranging enough that producers ought to be thinking about what the potential change means for their business.
In this month's roundtable, I talked with three of the more proactive and productive producers I know about the potential for a fiduciary standard, and how they see it affecting their — and, by extension, your — day-to-day operations. Sharing their insights this month on the fiduciary standard and how they are preparing for potential changes are the following top producers: William H. Black Jr., CLU, ChFC; Robert B. Plybon, CLU, ChFC; and Adam A. Solano Jr.
For the rest of this roundtable, see:
The future of commission-based compensation
Hirsch: Do you anticipate that the business will gravitate toward a fee-only kind of compensation structure? And similarly, are you at all concerned about the future of the commission-based compensation structure?
Black: I may be set in my ways, and many people tell me I am. However, I don't see insurance being sold on a fee-only basis with much enthusiasm. I find it difficult to believe the buying public will appreciate the fact they must still pay the premium and then pay more for the agent's time.
Something similar happened to travel agents, and look how it devastated their industry. Now we all book our own airline and hotels online. There is only one difference, and that is that life insurance is sold, not bought. While one may make an effort to purchase a vacation online, less insurance coverage will be purchased in a similar way. Yes, the term sales will happen, but buy/sell agreements, insurance for estate liquidity, hybrid life plus long-term care policies, annuities, etc. — those sales will drop dramatically.
That will prove to be detrimental to the middle class and survivors. We all know that, at present, the middle class is under insured. This form of regulation will only make the problem worse, in my opinion.
Plybon: We could be pushed to a fee-based system, but I do not think that is imminent. More than likely, in the short run, we will see more disclosure, including commission disclosure. This is already a fact in some states and some markets, like qualified plans and corporate-owned life insurance — COLI.
Solano: I am concerned because our profession as a whole does a lot of good for this country. Seventy-five million American families own our products and services. One of every five dollars saved rests inside a life and annuity product. Each day our industry pays out $1.5 billion in life and annuity benefits. The government, through Social Security, pays out $2 billion a day. Which one holds an AAA rating and is growing each year? And which one is running deficits and has its ratings reduced?
