Have you been following U.S. Senator Elizabeth Warren's investigation into the non-cash perks annuity advisors earn for sales? Her efforts have sparked political debate, which I won't go into here. But I would like to ponder the ethical implications of her charges. Ready?
First, Warren believes "annuity agents that (sic) are more interested in earning perks than in acting in their clients' best interest can place Americans' savings and retirement security at risk." She sees cruises, trips to glamorous foreign cities, and diamond-encrusted Super Bowl-style rings as conflicts of interest that can lead to unsuitable sales. She wonders why the insurance industry hasn't banned such perks even through NASD (now FINRA) did so in 2003. And she views companies giving motorcycles and exotic cars to their top producers as wrong, period.
So does Senator Warren have a point? I think most reasonable people would agree non-cash perks can in theory pose ethical challenges at times. Getting paid extra to recommend specific products can:
- Distort your professional judgment, leading you to recommend unsuitable products in order to qualify for incentives.
- Tempt you to "gang production" with one carrier or FMO in order to meet qualification thresholds, again leading to questionable decisions.
- Get you and your spouse addicted to nice trips and prizes that distort your objectivity.
- Convince you to remain with an FMO even though their products, service, or compliance advice may be suspect.
- Put you at a marketing disadvantage with fiduciary advisors who may have sworn off perks.
Most advisors know these issues and manage them effectively. A minority ignore them, serving their own financial interests, not those of the client. And it's these latter agents who produce the egregious violations we read about every day — and that attract regulatory scrutiny that boost compliance costs for everyone.
