“There is an ongoing, and often misunderstood, conversation around the standard of care owed to clients in the context of life insurance and financial product recommendations. Terms like suitability, best interest, and fiduciary duty are frequently used interchangeably. They should not be. These are not semantic differences. They are structural differences, and those differences directly impact the quality of advice clients receive, the defensibility of recommendations, and ultimately, long-term outcomes.”
Bill Boersma provides commentary on the practical differences between suitability, best interest, and fiduciary duty, how each standard operates in real-world insurance and financial planning, where they diverge, and why those distinctions materially impact both advisor decision-making and long-term client outcomes.
Bill Boersma, CLU, AEP and LIC has spent his entire career specializing in life insurance. He predominantly works with wealthy business owners and professionals regarding insurance for estate planning, business succession and charitable strategies. Bill is generally introduced by estate planning and business attorneys, CPAs, trust officers, family offices, non- profit leaders and various financial planning professionals. Recognized nationally as an expert in life insurance, Bill utilizes his experience and expertise to be an effective ally for policy holders and their professional advisors. From designing strategies to implementing solutions to ongoing management and consulting, he tends to challenge industry orthodoxy and provides a refreshingly candid take on life insurance while benefitting clients through a pragmatic process.
Here is his commentary:
EXECUTIVE SUMMARY:
There is an ongoing, and often misunderstood, conversation around the standard of care owed to clients in the context of life insurance and financial product recommendations. Terms like suitability, best interest, and fiduciary duty are frequently used interchangeably. They should not be. These are not semantic differences. They are structural differences, and those differences directly impact the quality of advice clients receive, the defensibility of recommendations, and ultimately, long-term outcomes.
COMMENT:
There is an ongoing, and often misunderstood, conversation around the standard of care owed to clients in the context of life insurance and financial product recommendations. Terms like suitability, best interest, and fiduciary duty are frequently used interchangeably. They should not be. These are not semantic differences. They are structural differences, and those differences directly impact the quality of advice clients receive, the defensibility of recommendations, and ultimately, long-term outcomes.
At a high level, the distinction seems simple. Suitability asks whether something fits. Best interest asks whether it is better than the alternatives considered. Fiduciary duty asks whether it is the best option available, regardless of compensation, convenience, or product bias. In practice, however, the lines are not only blurred, they are often misunderstood or, in some cases, applied inconsistently.
Suitability is the foundation, and it is also the lowest threshold. A recommendation satisfies suitability if it aligns, in a general sense, with the client’s financial situation, objectives, and risk tolerance. It does not require that the recommendation be optimal, it does not require that alternatives be fully explored, and importantly, it does not require that conflicts of interest be eliminated, only that they exist within the bounds of disclosure and general regulatory expectations. This is why so many product-driven recommendations clear suitability. The standard is not designed to identify the best outcome; it is designed to prevent clearly inappropriate ones.
Best interest moves the analysis forward, but not as far as many assume. Under frameworks such as Regulation Best Interest (Reg BI), the NAIC Best Interest model (adopted in many states for annuities), and New York Regulation 187 (which extends a best interest framework to life insurance), the advisor must demonstrate a process. There must be some level of evaluation of costs, risks, and reasonably available alternatives, and there must be a documented, reasoned basis for the recommendation. But the standard is still rooted in defensibility, not perfection. Conflicts of interest are not prohibited; they are managed. Commissions remain, product shelves remain, and distribution constraints remain. What changes is the expectation that the advisor can explain, and support, why the recommendation was appropriate relative to other options.
Fiduciary duty is different. It is not satisfied by showing your work; it is satisfied by the outcome of your judgment. A fiduciary is required to place the client’s interests ahead of their own at all times. That requires evaluating the full landscape of available strategies, minimizing or eliminating conflicts where possible, and selecting the approach that produces the best expected outcome for the client, not the one that is easiest to implement or most aligned with how the advisor is compensated. It is not a product standard; it is a duty of loyalty and care.
These distinctions become particularly important in the life insurance world because the regulatory framework is not aligned with the economic reality. In most states, life insurance recommendations are still governed primarily by suitability. Some jurisdictions have adopted best interest standards, particularly for annuities and, in more limited cases, life insurance. Fiduciary duty, however, generally applies only in specific contexts, such as dual-registered advisors or ERISA-governed retirement advice. The result is a gap: complex, long-duration products are often evaluated under relatively low standards of care.
Consider a fairly typical client: a 45-year-old high-income professional with a long time horizon, a moderate-to-high risk tolerance, and a desire to build tax-advantaged accumulation outside of qualified plans. Two strategies are presented: an indexed universal life policy and a variable universal life policy. Both meet the general objective, both provide permanent coverage, and both offer a form of cash value accumulation. At a surface level, either could be positioned as appropriate. The indexed product is framed as the safer choice, offering a 0% floor with capped upside, while the variable product introduces market exposure but offers greater long-term return potential, lower cost drag in many cases, and no artificial cap on growth. The recommendation is made in favor of the indexed product.
Under a suitability standard, this analysis is straightforward. The product aligns with the client’s goals, provides accumulation potential, and offers downside protection the client may find appealing. There is nothing inherently inappropriate about it.
Suitability: PASS
Under a best interest standard, the analysis becomes more demanding. The question is no longer whether the product fits, but whether it was selected after a meaningful evaluation of alternatives and whether its limitations were appropriately weighed against its benefits. At that point, issues begin to surface. The client has a long time horizon, which increases the importance of compounding. The presence of a cap introduces a structural limitation on that compounding, while the variable product allows full participation in market growth. Cost becomes relevant, as even modest differences in structure can materially impact long-term outcomes. Risk capacity must be distinguished from risk preference; a client may prefer downside protection but still have the financial ability to absorb volatility over a multi-decade period. Most importantly, the advisor must be able to demonstrate, consistent with Reg BI, NAIC-based standards, or NY Reg 187, that the recommendation is superior after evaluating reasonably available alternatives. In many cases, that explanation is thin or undocumented.
Best Interest: FAIL (or, at minimum, difficult to defend)
Under a fiduciary standard, the analysis tightens further. The question is not whether the recommendation can be justified, but whether it represents the best available path forward given the client’s objectives, time horizon, and financial capacity. For a 45-year-old with 20+ years to retirement, expected return, cost drag, and compounding efficiency are central considerations. If a lower-cost, market-based approach produces a higher probability of achieving the client’s goals, a fiduciary is required to prioritize that outcome. If the alternative is selected anyway, there must be a compelling, client-centered reason, not one tied to product familiarity, distribution limitations, or compensation.
Fiduciary: FAIL
Most disputes in this area are not about whether a recommendation technically complied with the applicable rule; many do. The issue is that the applicable rule may not be demanding enough to ensure a strong outcome. A recommendation can satisfy suitability and still be suboptimal. It can even satisfy a loosely applied best interest framework and still fall short of what a fiduciary would consider appropriate. That is where friction arises between what is allowed and what is optimal.
Rather than focusing on definitions alone, it is more useful to think about how these standards operate in practice. Suitability asks: can this work? Best interest asks: can I defend this process? Fiduciary duty asks: is this truly the best option for the client? Those are very different questions, and they lead to very different answers.
This is not an argument that one product is always better than another or that one structure is inherently flawed. Indexed products have a place, variable products have a place, and insurance itself has a place. The point is narrower and more important. The standard applied to the recommendation shapes the outcome. If the analysis stops at suitability, the range of acceptable answers is broad. If it moves into best interest, the range narrows. If it reaches fiduciary-level thinking, the focus shifts entirely to optimization.
For advisors, the practical takeaway is straightforward. The goal should not be to meet the minimum standard required. It should be to operate as if the highest standard applies, whether or not it formally does. That is where better decisions are made.
HOPE THIS HELPS YOU HELP OTHERS MAKE A POSITIVE DIFFERENCE!
Bill Boersma
Bill Boersma is a CLU, AEP and LIC and the founder and owner of OC Consulting Group. More information can be found at www.OC-LIC.com, www.BillBoersmaOnLifeInsurance.info or email at bill@oc-lic.com or call at 616-456-1000.
Securities offered through Valmark Securities, Inc. Member FINRA, SIPC. Investment Advisory Services offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor. OC Consulting Group and its affiliates are separate entities from Valmark Securities, Inc. and Valmark Advisers, Inc.
