If you’ve never seen the movie “Groundhog Day”  with Bill Murray, you should rent it.

In it, there is a scene where Murray’s character confronts an old acquaintance who is now an insurance agent.  This shiester tries  every trick in the book to get Murray to buy life insurance.  I won’t tell you how he turns the tables on the salesman but that scene alone is worth the rental price.

Insurance agents have a bum rap…..and I hate to say it….but in my opinion, much of it, for a good reason.

The  State issues licenses to sell insurance.  If someone only has an insurance license, they can only sell …..you guessed it…….insurance.

Such a person is likely to see life insurance as the solution to whatever your financial problem is.

Life insurance agents  are either captive or independent.  A captive life insurance agent is only allowed to sell the insurance products that her insurance company sells.  That means if you are talking to a captive Met Life agent, he can only sell those products that Met Life approves of.

By the way, they don’t call them agents for nothing.  These people are agents for the companies they work for – they are not your agents.

If you are dealing with an independent agent, she can sell insurance products from a variety of insurance companies.

But the main point is that if your financial adviser only has an insurance license, he can only and will only sell you insurance products.

Am I saying that life insurance is bad?  Am I saying that nobody needs life insurance? No I am not.

What I am saying however is that life insurance is one piece of the puzzle that you may or may not need.  I am also saying that most people I know have financial needs that life insurance can’t meet.  So…yes….you might need some life insurance and …no….life insurance can’t solve all your financial problems.

Life insurance agents sometimes tell you that whole or universal life is a tool that will help you save for retirement.  Don’t fall for it.  The only people I’ve ever seen that benefit from the sale of these products are the people who sell them. I’m not going into the pros and cons of life insurance in this post.  And I’m not going into the pros and cons of term vs whole life.  We can save that for another day.

I’m simply trying to point out that if your financial adviser is only licensed as a life insurance agent, you should find a new adviser – even if your current adviser is your brother.

What about stockbrokers?

Like insurance agents, stockbrokers work for their employer – not you.  Their first responsibility is to the brokerage firm.

Does this mean that every stockbroker is a dirty rotten scoundrel?  Nope. You’ve got to compare brokers.  Some of my closest friends are stockbrokers.  Most of the stockbrokers I’ve met really want to  do the best they can for their clients.  The only problem I have with these folks is that they are held accountable first and foremost to their firms and not to their clients.

Their firm decides what they can and can’t sell. Their firms decides how much commission the broker will get if that broker sells product A as opposed to product B.  This is a huge conflict of interest and it’s the reason I left the brokerage business many years ago.

I was a stockbroker for a very large bank in California.  My manager wanted me to sell more annuities (a life insurance product) to clients because the commissions were higher.  I didn’t want to do it because I thought they were a bad deal for my clients and this led to a problem.

My manager’s constituents were his bosses and he wanted to make them happy.  My constituents were my clients.  If I didn’t make them happy, I would be out of business.  I could not maximize my clients interests without jeopardizing the interests of my manager so I split.

And lots of brokers are leaving the brokerage world for that exact reason.  My point is, if you are still working with a broker, you are at a disadvantage. Your broker makes recommendations to you only after his employer has given the green light.  That’s like a doctor having to get permission from the pharmaceutical companies before he can subscribe any medication.  That just plain stinks.

Yesterday I gave you homework and today is no different.

Spend a few minutes.  Read this over again.  Are you comfortable having a stockbroker or insurance agent as your main financial adviser?  Talk this over with somebody you trust.  If you are comfortable, why?  If not, why not?  What are really looking for in an adviser?

I don’t think that everyone needs a financial adviser.  I really don’t.

Are stockbrokers and insurance agents useless?  Not at all.  They all have a place and can potentially be a very important part of your financial team. It’s just that neither can really be your financial adviser.

Last, I imagine that some readers might think I’m writing this series to drum up business for my own firm.  As you’ll see tomorrow, nothing could be further from the truth.

Like this article? You will love getting my free brilliant financial updates! No spam, and I won't give your email address to any other person or company. That's a personal promise. Neal Frankle, Certified Financial Planner, Los Angeles, California.

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