Stop the Investing Rip-off by David B. Loeper

Author:David B. Loeper
Language: eng
Format: epub
Publisher: John Wiley & Sons, Ltd.
Published: 2011-10-12T16:00:00+00:00

Chapter 10

Insurance Agents (and Insurance Companies)

Most of the insurance industry has adapted to the financial-service conglomerate model by expanding to include investments and advisory services. Your friendly homeowner’s insurance agent is probably also licensed to sell mutual funds, variable annuities, and various forms of “wrap fee” advisory accounts, just as your stockbroker is likely to also be licensed to sell annuities and life insurance.

The insurance industry has a very strong lobby that has earned it some special Congressional blessings from a tax perspective, and a somewhat checkered past as it relates to financial advice.

Back in the early 1980s, insurance companies almost completely tarnished the reputation of the financial-planning industry. This was before there were regulations defining what financial planners did, the disclosures they needed to make, and registrations needed to provide advisory services.

Back in the early 1980s when I entered the business, I joined such a firm. It is hard to imagine a world where we do not all have computers on our desks, but that was the world back then. The firm I joined was an insurance company that was also registered as a broker/dealer to sell mutual funds and variable annuities. We also had a business that did retirement plans for companies, one of the focuses of our particular office. I had a supervisor that was one of the top salesmen for the office, and he encouraged me to make a lot of phone calls to people on a completely cold basis. This was also before the national Do Not Call list existed.

Most people in the office focused on selling life insurance, picking up the occasional mutual fund sale as well. We called ourselves financial planners, and the two shared computers we had access to for creating sales presentations and “hypotheticals” for presentation to our prospects were constantly busy printing out, on dot matrix printers, such materials. There were probably thousands of offices just like ours all over the country. The company that ran the agency was a life insurance company, which limited the insurance products to life insurance, fixed annuities, and disability income insurance. The broker/dealer they owned expanded this product line to mutual funds, a discount brokerage service (from which we did not get paid any commissions), and variable annuities. There was also a satellite office where there was an agent licensed for property and casualty insurance for things like homeowner’s and auto insurance, and although we were all also licensed to sell health insurance in our state (it was part of the Life, Disability, and Health Insurance License), no one did. Some of the biggest salesmen in terms of commissions generated were also licensed to sell limited partnerships. Not being licensed to sell these at the time, I didn’t pay much attention to the products they were peddling, but I did know they had huge commissions (which is probably why they sold them) and how they ended up to be such big revenue generators for the office.

Financial planning was in its infancy at this point of the industry, and the Financial Planning Association was just getting started.

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