I love the insurance industry. It’s not the puppy love I felt when I leapt headfirst into leading my first insurance business. It’s not the coming-of-age identity struggle I faced as my career progressed and I had to decide whether to focus my energy on operations or strategy. Now, I’m talking mature love. When you love something the way I love the insurance industry, you don’t just care about it in your spare time. You want to see it flourish into the best version of itself. Over and over again.
The insurance industry is in an awkward position. It is plagued by product commoditization, prolonged low-interest rates, regulatory mandates ill-matched with insurance distribution, nontraditional entrants effecting tax and capital arbitrage, and generalized disruption. In advising my insurance company clients about how to innovate our way out of these circumstances, I often empathize with Bill Murray’s character in Groundhog Day. Until we begin to acknowledge, and maybe even embrace, the changes, we will be stuck in an endless loop where insurance is perceived as a commodity and where distribution is expensive (which makes products expensive!). Insurance in this world remains isolated from an increasingly integrated, fintech-driven, fee-conscious, financial advisory community.
State insurance regulation governs the conduct of agents and insurance brokers. It needs to be adapted to govern RIAs as well. Insurance advisement is a premise different from insurance sales, just as there is a big difference between the consumer experience of advice versus sales of securities. While some insurance professionals already consult on or about contracts for consumers, and legally charge a fee for doing so, this model is not mainstream for insurance distribution. Insurance regulation currently occurs at the point of sale and does not contemplate ongoing advice. It should be adapted to do so. Such an adaptation would facilitate a transformation of both insurance, which means liability management, and wealth management as disciplines.
There is no direct corollary to the ’40 Act for insurance. There is no national authority that can define the meaning of the term “insurance advis(o)er.” There is no independent national source upon which financial professionals can rely for accurate annuity conduct, oversight and advice.
We are all receiving a high volume of rapidly changing regulatory guidance. It is not always clear how it applies to the nascent world of “insurance advice.” I empathize with the advisors who tell me that there is not one place they feel they can turn to for definitive guidance about what their responsibilities are for various forms of annuity transactions. To try and assist advisors who feel this way, I have compiled the table below. This is not legal advice, but I hope it gives a starting point for a broader discussion in the industry.
Michelle Richter’s Non-Lawyer Best Guess on Applicability of Various Laws to Different Types of Annuity Transactions. Feedback welcome, especially from financial regulatory lawyers!
Read the rest of the article, here: https://www.wealthmanagement.com/insurance/rias-sell-verbs-agents-and-brokers-sell-nouns
The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.
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