Secrets Financial Advisers Never Tell – Day 2 – How to Find an Insurance Agent

If you’re wondering how to find an insurance agent or stockbroker, maybe you should reconsider the question. 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.  If you ask “How much money do I need to retire?” they’ll answer the question…and then sell you more insurance.

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 if you ask her to explain the question of term life insurance versus whole life, you won’t likely get an honest answer.

The main point – if your financial advisor 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.  And just because you need cheap term life insurance, don’t expect to get it.

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 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 versus whole life.  We can save that for another day.

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

What about stockbrokers?

Like insurance agents, stockbrokers also 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 firms decide what they can and can’t sell. Their firms decide 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 advisor?  Talk this over with somebody you trust.  If you are comfortable, why?  If not, why not?  What are really looking for in an advisor?

I don’t think that everyone needs a financial advisor.  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 advisor.

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.

RECAP:

Day 1 – We spoke about how to choose a financial planner – CFP.

Day 3 – We’ll discuss registered investment advisors.

Day 4 We’ll round up and see how this all fits.