The Most Important “Credential” an Insurance Advisor Can Have

Consumers naively believe that professional designations are the most important credentials an insurance advisor can have: Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC), or Certified Financial Planner (CFP). Granted, credentials mean the advisor has a reasonable head on his shoulders and has completed a disciplined educational path.

I would submit to you that the salutary restriction of receiving no commission may be the most valuable “credential” an advisor can have.  It alters the advisor’s heart which then liberates the head from the tunnel vision of seeing only those solutions that pay him a commission. It thus opens up a whole new (often commission-less) world. These solutions are typically unfamiliar to insurance reps who know only one way to get paid– to sell a policy.

By receiving no commissions, the heart is unfettered from the undertow of self-interest, placing the advisor in the most objective posture possible. It expands his capacity to give the best advice. After all it matters little how much an advisor knows if he does not use it for the customer’s advancement.

Warren Buffet said it this way:

In looking for people to hire, you look for three qualities: integrity, intelligence and energy. And if they don’t have the first, the other two will kill you.

Consumers naturally long for someone to strive exclusively for their welfare without regard to commissions. But it’s a two way street and any healthy relationship must have mutual respect. Consumers should be willing to pay for keen insurance market insight (where to find the best insurance bargains), the ability to evaluate proposed and current policies in a way few agents can, familiarity with alternative uses of premiums dollars for investing, and the seasoned ability to put it all together the best way that comes through years of experience.

Here’s a major challenge: commissions are hidden while fees from an unbiased advisor are fully disclosed. While fees are dramatically less than commissions, some consumers choke on them primarily because they can see them. It’s the old “strain at a gnat while swallowing a camel” human tendency.

Remember, the fee-only advisor has already forsaken the most profitable path in the insurance industry: selling policies for commissions. He’s probably doing it to genuinely serve others. So as a consumer, demand a good track record, a long list of satisfied clients, and then be willing to pay a fair wage, remembering that you should get it back (multiple times) through the on-going savings he will help you achieve.  The fee is one time; the savings is ongoing.

Balance Your Tires; Sharpen Your Ax

My father, Dewey Cave, (1925-2007) was age five when the Great Depression began and age 16 when Pearl Harbor was bombed. His developmental years were spent working hard in a no nonsense environment (war), and one of his core values was keeping things at peak efficiency and battle ready. His tools were sharp, well-oiled and tuned, and one fetish he had was keeping his tires balanced. He loved a smooth ride.

There was only one shop that could acceptably do the job for him: Eubanks Tire and Alignment. This was not a franchise shop hiring recent tech school grads, but a locally owned shop with third generation artisans who balanced tires while still on the car (in case of wheel irregularity), could shave tires if out of round, and took exceptional pride in their work. You drove away smooth as glass.

A life insurance checkup is like getting your tires balanced and aligned. Not only does it extend tire wear and help the front end last longer, it makes the ride enjoyable too!

95% of people’s life insurance arrangements are out of balance and misaligned. Most policyholders don’t recognize it because it’s asymptomatic- not pulling to the side or vibrating the front end. Still after it’s fixed, the improvement is dramatic.

Abraham Lincoln said, “If I had eight hours to chop down a tree, I’d spend six sharpening my ax.” Solomon elaborates: “If the axe is dull and he does not sharpen its edge, then he must exert more strength.” Eccl. 10:10 It’s the same principle.

Tires can get worse. Yesterday an adult daughter stopped in for a visit. As I walked her to her car I noticed that a tire looked low. The tire gauge confirmed only 10 pounds of pressure. “I just put air in that tire last week”, she remarked about the first car she’s ever owned. A quick look showed an embedded nail with a slow leak. Most insurance consumers are like my daughter: have a slow leak, don’t recognize it, just keep adding air (premiums).

Is it time for you to balance and align your tires, or at least remove the nails? Those that take the time to “balance their tires” with an insurance checkup save a lot of money and enjoy a smooth ride. But you must be like my father: find a shop with skills learned over multiple generations and make adjustments.

That’s our purpose: a specialty shop with 50+ years experience (two generations) that doesn’t sell policies, to guarantee objectivity and clear vision. When you drive out of our shop, you should have the smoothest ride possible- the right amount, the best value the marketplace offers.

It’s better to call and not need it, than need it and not call. I’ll talk to anyone about their situation for 10-15 minutes without charge…or you can just keeping adding air.

The Most Common Lie in Insurance Sales – Case Study #8

One purpose of IIA is to shine light on deceptive sales practices in the insurance industry in order to help consumers spend their premium dollars more efficiently. After my last two cases I can say what is the most frequently spoken mistruth in the sales context. Its plausibility disarms consumers yearning for help and it’s glibly uttered or implied in most interviews: “I will recommend what’s best for you.”

This tendency was observed by Solomon millennia ago. In Proverbs 20:6 he writes, “Many a man proclaims his own loyalty, but who can find a trustworthy man?” Two adjectives contrast the frequency of loyalty to another’s best interest. Many claim it, while few provide it.

In the first case an agent was trying to sell an oral surgeon a large cash value policy for asset protection. (Cash values are exempt from malpractice suits.) I had reviewed the proposed policy and discouraged it (wrong priority; better policies), but my client wanted me to hear the sales pitch firsthand. “When I talk to the agent it sounds so good, I want you to hear it to be sure I’m not missing out.” So the client, agent, and myself had a conference call for well over an hour.

The agent was pleasant and persuasive. I can see how my client, who did not understand the alternatives and was fuzzy on appropriate priorities, could be drawn in. The agent said multiple times, “We need to do what’s best for (client) “. His recommendations were not.

The stakes for the agent were high (a 10K commission) so I expected resistance. When I finally showed an alternative (a last ditch effort for illustration only, not as a recommendation) with a second year cash value of 34K compared to his policy’s cash value of $700, the agent was undaunted, persisting his policy was better. This surprised me, but such denial of the obvious highlighted the disparity between the claim (to “do what is best”) and the recommendation.

The second client shipped me brochures and charts from a financial planner recommending a poor value annuity and cash-value life policy. The “planner” never even evaluated the client’s current policies, one of which was a good value (right type, strong company, lower rates) that met his need much better than the proposed policy. Scattered through the literature was a plethora of claims such as “client’s interests are to be placed first and foremost” and “employees agreed to act in an ethical manner, and with integrity.”

Andrew Carnegie said, “As I grow older, I pay less attention to what men say. I just watch what they do.” These advisors proclaimed their own loyalty with words, but their real loyalty, as per behavior, was marketing policies. Neither client needed more life insurance.

What’s the lesson for the insurance consumer? A successful agent routinely claims to put your interest first. Expect it. However this in no way means he keeps your best interest first. It only means he is a good salesman. He survives by persuasion and no line is more effective than claiming to keep your interests first.

The wise consumer will heed Solomon and Carnegie:

  1. expect many noble sounding (but empty) claims. Solomon- Pr.20:6
  2. pay little attention to them. Carnegie
  3. test them with a second (impartial and experienced) opinion. Solomon- Pr. 18:17

Like Solomon and Carnegie, these two clients paid little attention to what men said and reached outside the box to test them with a second and impartial opinion. Like Solomon and Carnegie they both kept more of their wealth. Pr. 14:15 & 24

The Value of a Second and Impartial Opinion

The way most people buy life insurance is a recipe for poor results. It violates two clear principles of successful decision-making commended in Proverbs 24:6. “By wise guidance you will wage war and in an abundance of counselors there is victory.” Notice two dominant adjectives: wise and abundance. In other words get a second opinion… but be sure it’s wise.

Most insurance is purchased with singular advice from a sales agent, i.e. without a second opinion. Strike one.

What about the “wise” part? We tend to think wise guidance primarily consists of training and experience. While those are important, there is a third element that trumps both…and it has to do with motivation. Proverbs 24:23 gives a clue, ” To show partiality in judgment is not good.” Why is it not good? Because it’s self serving. A similar verse, Proverbs 28:21, inspired the name of our website, “Impartial insurance advisor”: “To show partiality is not good- yet a person will do wrong for a piece of bread.”

This verse described what I observed in sales meetings while an insurance agent. We regularly reported how many policies we sold, the amount of insurance, and the amount of annualized premium collected. With that sort of pressure and the constant enticement of commissions dangling before us, could we be impartial advisors?

Deuteronomy 16:19 says, ” You shall not distort justice; you shall not be partial, and you shall not take a bribe, for a bribe blinds the eyes of the wise.” What does a bribe do to the wise? It blinds (takes away the ability to see clearly), leading to a distortion of justice. When Proverbs 24 commends “wise guidance”, it means guidance not under the influence of a bribe, a “piece of bread”, or any inducement to distort advice. Yet this is exactly what a commission does. It makes the commissioned “advisor” at least to some degree a blind guide. Strike two.

Warren Buffett says it this way. ” In looking for people to hire, you look for three qualities: integrity, intelligence and energy. And if they don’t have the first, the other two will kill you.” Training, experience, and intelligence cannot make up for a lack of integrity (as per Buffett) or being partial (as per Solomon).

Why do consumers buy insurance with singular advice from blind guides? It’s easier (agent takes initiative while consumers are passive), or maybe not knowing where else to turn. That’s why Impartial Insurance Advisor was created, a source for that second opinion that is wise– well-trained and experienced– but most importantly impartial which means not self seeking.

Many are discovering that paying a little for impartial advice is the best insurance money they can spend. So what does Proverbs 24:6 commend for the best decision making?

  • The Value of a Second Opinion
  • The Value of an Impartial Opinion

That’s who we are. Combine that with 35 years of experience in the insurance markets and all the training the industry has to offer and what do you have? Homerun!

If I’m with a Good Company, Isn’t that Enough?

Some people are so convinced of how great their insurer is, that they cannot see any benefit from outside advice. Nothing could be further from the truth.

Perhaps the best way to illustrate this is by example. I just finished a life insurance review that illustrates the dramatic potential for improvement within the same company. This client was a little extreme for most of us: his income was higher and what he was asked to spend on life insurance may seem absurd (though it happens all the time). But it graphically shows what frequently happens, albeit often on a lower scale.

A Northwestern Mutual agent approached this newly practicing doctor earning a very strong income and recommended a life insurance policy as an investment. The doctor contacted me for a second opinion. The agent emphasized what an outstanding company he represented (true) and proposed a 3 million dollar policy costing 25k/yr with a surrender value of 3k at the end of first year. I suggested a variation with the same company: a lower death benefit, costing 12k/yr with a surrender value of 10k at end of first year. Over 12k less premium for 7k more value!

The gist of this recommendation was to shelter money in an investment that would be exempt from a medical malpractice lawsuit. Whole life cash values fall in this category. The thing to keep in mind is that it was an investment.

One should not tuck an investment inside a 3 million dollar life insurance policy, with its ever-increasing internal mortality costs, unless you need the death benefit. This was a newly married couple, with no mortgage debt, no school debt, and no children. She was a Peace Corp worker who had never dreamed of marrying a high income professional anyway.

Part of this misdirection lies in the fact that the company has some policies that are (much) better values than others. The consumer doesn’t know that and the agent has no incentive to tell it. The commission on the proposed policy was over 12k; the commission on the variation was less than 2k. The influence of this commission on advice can be profound. It’s much better to get your financial advice from someone not under that influence. How is my compensation influenced by his choice? Zip. I’m paid to help clients find good values.

The conclusion is that connecting with a fine company is just the beginning. Northwestern is such a company that I deal with frequently, and I cannot recall a single time when arrangements with them were not improvable, either with proposed or in-force policies. * There will always be a conflict between your interest and the company’s, no matter how good they are. Paying a guide is money well spent and if you think because you are with a good company you don’t need a guide, think again. This doctor made a 2000% return on his guide fee. Extreme? Yes. But excellent returns on fees for impartial insurance advice (even when you are with a good company) are common- the rule, not the exception.

If you don’t mind living with the advice of an agent who is “under the influence”, you can save that fee. Most people will never know how much better it could have been. However more and more people are discovering the advantage of using an impartial guide, while they save their fee back many times.

*These all had Northwestern policies (see Testimonials):

  • Mark and Liesl Marmon
  • Paul Caldwell
  • Roger Smith
  • Charlton Veazy
  • Bob and Peggy Arrington