Over time, as the financial services industry has evolved, more and more financial advice is provided for a fee. Many advisors no longer work with commission-based financial products because they do not want the use of commission-based products to taint their objectivity. They do not ever want to be put in the position of being questioned about whether a recommendation was made because it was in their best interest or the best interest of their client.
However, virtually all of the life, disability, and long-term care insurance products available in the market today are commission-based. Most people are not inclined to purchase life, disability, or long-term care insurance, even when they know they need it. This is one of the principal drivers behind the compensation model that has existed in these insurance markets since their inception. But when there is a commission to be earned, there is always the possibility that the recommendation being given is more in the interest of the person doing the recommending than the person being served, and this is a very real problem in the insurance industry.
One of the analogies we often use with clients compares buying insurance to buying a luxury car. If you went out shopping for a luxury car, for example, and the best car for your needs was a Lexus, but you started your shopping at the Mercedes dealership, you wouldn’t expect the Mercedes dealer to recommend a Lexus, even though the Lexus was clearly the best car for you. The same goes for insurance. If you go to an insurance agent who represents a particular company, even if the agent is able to represent other companies, you should not be surprise if the recommendation you receive is a product offered by the agent’s primary carrier.
We have no allegiance to any insurance company and we spreadsheet compare every recommendation we make. Just as the fee-only advisors we work with do not earn commission, we will not tie ourselves to any company that requires us to place a minimum amount of business with them because we never want anyone we advise to have any reason to believe that the recommendation we are making is more in our interest than in theirs.
Our goal with every client is simple: to find the most cost-effective insurance solution in the market for the need being addressed. We are obsessed with transparency and value. We always illustrate the lowest cost products in the market using software that surveys every company in the industry who provides product to independent brokers. And we always recommend the lowest cost product in the market, unless the lowest cost product has inferior policy provisions or is offered by a company that fails to meet our minimum financial strength requirements.
We keep the advisors we work with informed, but we do not involve you in sensitive underwriting issues. And we do not do any work with clients beyond the work requested by you, our advisor-partner. We do not compete with you.
We believe the purpose of insurance is to cover risks we cannot afford to take, and sometimes the best insurance solution is no insurance.
In most instances, we simply fulfill a recommendation made by a fee-only advisor. It is very common for the advisors with whom we work to simply send us an email saying something to the effect of “Please reach out to my client. He needs $3 mil. of coverage for a minimum of 20 years and no longer than 30 years.”
We certainly make coverage amount recommendations when asked, but more often than not we are addressing a need that has been uncovered in the financial planning process. And we are addressing the need with the most cost-effective solution in the market.