When Sam Lichtman reviewed the terms of a new client’s universal life policy — which the client had purchased years earlier from a family friend — he was shocked.
Lichtman, financial planner and founder of Millen Wealth Advisors in London, Ont., said the policy broke the rules of common sense at every turn. The policy’s annual renewal meant premiums would increase every year; the policy was set up under the wrong company (the client’s operating company, not his holding company); and there was no anticipation of the client’s desire to de-risk investments as retirement drew close.
Worst of all, the investment portion of the policy was based on an 8% return in the stock market. To cover management fees, it would need to earn 10.8% every year until the client was in his 90s. Lichtman and his team ran a volatility analysis and found that the policy was likely to lapse within eight years of the client’s retirement.
“As much as I’d love to live in a world where ultra-aggressive sales are no longer part of the picture with insurance,” Lichtman said, “I just haven’t seen the evidence of that.”
Like many financial advisors, Lichtman would prefer to see a greater shift toward holistic advice that emphasizes the client’s full range of needs, not just life insurance, and is based on reason rather than fear.
“It needs to be evidence-based, meaning we look at outcomes and determine which strategy has the highest probability of success, based on realistic numbers and projections,” he said.
Meagan Balaneski, financial planner with Cup of T Financial Planning in Vermilion, Alta., said fear-based selling, in which an advisor describes — often in apocalyptic terms — what happens if a client doesn’t buy something, is simply not in the client’s best interest.
Both Balaneski and Lichtman believe the compensation structure is the root of the problem. There’s too much incentive for an advisor to act in a self-serving rather than client-focused way, they said.
“The higher the face value of the contract, the more the agent gets paid. That’s in complete misalignment [and] complete conflict,” Balaneski said.
Of course, not all dedicated insurance reps use high-pressure sales tactics, but they do exist. And while some advisors support the holistic approach to incorporating insurance into a financial plan, others in the industry insist that only a dedicated insurance specialist can adequately advise a client regarding the most appropriate insurance product.
The term “holistic” does not sit well with Jim Ruta, president of Advisorcraft Media Group in Burlington, Ont. He considers it a misnomer when applied to financial planning. Rather than addressing a client’s full range of needs, he said, holistic planners appear to be biased toward investments and relegate insurance to the fourth or fifth spot on the financial planning roster.
“‘Holistic’ should really mean essential financial security,” Ruta said. “Unfortunately, you’ll find that really isn’t the case. We just get [clients] involved in investment. Life insurance is relegated to a risk-management position.”
The portrayal of life insurance advisors as aggressive and insensitive may be common, Ruta said, but is generally inaccurate.
“High-pressure sales tactics are not professional, and they’re not to be encouraged or recommended,” Ruta said. There are many ethical, knowledgeable insurance salespeople who know their products and sell them correctly, he said.
He added that advisors should not aspire to be all things to all people: “We have tried, under holistic planning, to do everything. And it’s just not possible.”
Ruta believes holistic planners lack the expertise needed to master the complexity of specialized insurance policies. “How good are you if you sell three or four insurance policies a year?” he asked.
Mark Halpern, financial planner and CEO of WEALTHinsurance.com in Toronto, believes effective client care increasingly requires a team approach, and advisors shouldn’t spread themselves too thin.
“Once you start diversifying your offerings, you become less and less valuable,” Halpern said. “There has to be more collaboration in this world. People need an accountant, they need a lawyer, they need an investment person, they need an insurance person. And all the people have to be speaking together.”
Halpern would like to see greater use of mentorship as a link between generations of financial professionals that have different approaches to client care.
“There has to be a sharing of the ‘old school’ with the ‘new school’,” he said.
Melissa Harrell, principal of McRae Wealth Management in Winnipeg, said younger advisors, focused on technical skills, often lack the “fantastic” sales skills of older advisors. Sometimes, she said, you wonder if you could have done more to emphasize the need for insurance.
“If I can sit in a room and listen to a bunch of senior life agents who have been doing this for 40, 50 years, I’ll write down a million tidbits of what they say,” she said.
The industry is shifting away from the hard sell, Halpern said, but insurance remains a complex product that requires a high level of expertise.
“The world is finished with agents who are just selling a product or a concept,” Halpern said. “We have to become problem-solvers.“
This article appears in the May issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.