Insurance Agents Weigh In on Column Taking Industry’s Bad Apples to Task
Q: I am an insurance agent with 27 years’ experience who just finished reading your June 4 Money Talk column about a 50-year-old who was being advised by an agent-in-training to convert her 401(k) plan to a variable life insurance policy in order to later get tax-free income. Of course, if this is true, it would be an absurd transaction, as you correctly pointed out. I would be surprised if the suggestion was in context and, certainly, if it was, the trainee could never have gotten such a transaction through a company. The risk of a lawsuit would have prevented it. You go on to condemn the whole industry based on this anecdote. It does seem that you have an ax to grind with the insurance industry. I would just knock the heck out of any unethical action that one individual took and not blame all of us for the actions of some ignorant and/or unethical individuals.
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A: I wish you could read my mail for a week.
I used to take the approach you suggest, but after six years of covering the insurance industry, I’ve changed my mind. Something is seriously wrong, and too many companies seem to be complicit in letting inappropriate sales continue.
I get a couple of complaints a month, at most, from readers about brokers. I get a few every year about accountants or certified financial planners who screw up. I get letters and e-mails almost every day from readers who have been inappropriately sold some insurance product.
Variable annuities are being sold to risk-averse octogenarians, or sold for individual retirement accounts, or sold for children’s college education funds. Variable life policies are being sold to people with no dependents, or in lieu of contributing to an employer’s tax-advantaged retirement plan, or when the people buying the policy can’t afford the premiums for an adequate amount of coverage.
It reminds me of the years before U.S. Sen. William Roth held hearings on the Internal Revenue Service, when we personal finance writers could have written nothing but horror stories about mistreated taxpayers because there were so many examples to choose from. The official line from the IRS, of course, was that mistreatment was rare.
The situation in the insurance industry is finally catching the attention of the Securities and Exchange Commission, which recently issued a warning to investors about inappropriately sold variable annuities. The SEC cautioned that many insurance salespeople are failing to adequately warn investors about the significant drawbacks of these investments.
I hope that experienced and knowledgeable agents such as you will have a hand in pushing the entire industry toward better compliance. It might cost the companies some sales in the short run, but I imagine that added government regulation would cost a heck of a lot more.
By the way, I expected to take some heat from insurance agents on that June 4 column. What I didn’t expect was what I got: messages and letters from longtime agents who actually agreed with me and who were even more blunt in their assessment of the problem. Here’s a sampling of their comments:
* “In my 20 years as an agent, I am sorry to say that many incompetent individuals have found their way into this business. Driven by near-messianic devotion to the commission dollar, many have hurt the buying public. Keep on hammering idiots like this one. Maybe someday we will quit hiring anyone off the street whose qualification to be an agent is that they can breathe on their own.”
* “Thank you for your frank and honest comments. The public should be aware that anybody can call themselves a financial planner, and therein lies a huge opportunity for abuse by some in the financial services industry who want to use the guise of financial planning to push product.”
* “I am a financial advisor and insurance agent in Louisiana and I can cite many similar horror stories that I have stumbled across in the course of my practice. As to my brethren in the industry who criticize you, they have either got their heads in the sand as to the problems in our business or they’ve got something to hide themselves.
“It is my belief, based on experience, that 60% to 65% of insurance salespeople are either incompetent or dishonest, and some combine the two traits. The great majority are simply incompetent, not dishonest. They genuinely believe that the schemes they are promulgating are better for the client, but they are genuinely mistaken. I do know that they are making it a much more difficult atmosphere for qualified, honest practitioners to go about their business.
“To you, I say keep up the good work of exposing fraud and incompetence.”
* “I thought you’d like to hear from a planner who agrees with you. I was hired by an insurance company in 1986. I was shocked over how everyone wanted to use variable life for every single investment. We are getting better; there are still many abuses, but at least the informed and enlightened [agents] use much more common sense when deciding to use variable life.”
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Liz Pulliam Weston is a personal finance writer for The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. She regrets that she cannot respond personally to queries. For past Money Talk questions and answers, visit The Times’ Web site at https://www.latimes.com/moneytalk.
