Back in 2007, Taylor Schulte started working in the life insurance industry. Yet it wasn't long before Schulte began to believe that the process of buying insurance was unfairly skewed toward the agent instead of the customer. Since commissions vary per company and product, Schulte felt the objectivity that agents need in order to serve their customers equitably wasn't there.
"I feel there's an inherent conflict of interest (in the commission-based business model) that didn't allow me to be fully objective when advising my clients. That didn't sit well with me."
So in 2014, Schulte did the unthinkable — he started refusing commissions.
That's not to say the 31-year-old Schulte isn't paid. He says he's simply found a better way to work through his new business, Define Financial, a financial advisory firm in San Diego. Schulte has a unique approach to his business: he offers life insurance products and advice not on commission, but on an annual fee basis. "When I launched my firm in 2014, I made a pledge to never make a commission on the sale of a product ever again."
It's a decision Schulte says sits better with his conscience. It's also one that sits well with his bank account. The benefits of the fee-only model, he says, are these: income is predictable, and it removes that conflict of interest he thinks exists in the current model. "The client never has to ask 'Is it in my best interest or yours? Are you trying to sell it to me to meet a sales goal, or is this really a need?' We take that out of the conversation."
That shift is one he says a lot of advisors are making these days. The days of commission-based insurance, he believes, are numbered, something he thinks frees agents and advisors. "It allows advisors to become really objective enough to say 'You know what? Maybe you don't really need this insurance' or 'Maybe there's a cheaper alternative' that allows us to sit in an objective seat and really advise the client.' "
It's all part of a comprehensive financial plan, not just a life insurance conversation, says Schulte. The life insurance, he adds, is just one piece. The annual fee gives clients access to advice whenever they're facing a decision that can alter their financial picture. It's something Schulte says helps his customers keep an eye on their total financial future. "I've never been one to want to focus on just one thing. I don't want to be known as just a life insurance person."
No fees, no problem
Schulte says his business has never grown faster since he made the change to fee-only business. That helps in a market in which the consumer is more educated than ever before, he adds. "There's so much information out there, and a lot more good information these days. Customers are coming in to that first meetings with a lot of good questions. They know what to ask, what to look for. So, starting my firm (as fee-only) has allowed me to showcase who I am, what we do, why we're different, and it's made it a lot easier for clients to make that decision to hire us."
