by Bill Boersma
Lately I’ve been thinking a lot about how life insurance consumers can understand the market and individual products and how do they know they can trust their agents.
We all know there are good and bad agents out there. Sometimes it’s a philosophical difference with others, but I’m talking about objectively bad advisors. Even if it’s a minority, it’s obvious they’re out there.
If policy owners have a responsibility to understand what they are getting in to, how do they do it? How can they get to a point that they know enough themselves? How can they vet advisors to root out the bad ones? What do they have to do to increase the odds they don’t wake up 5, 10 or 20 years down the road disappointed and realize they didn’t really understand what they were doing?
These iconic lyrics of Whitney Houston came to me as I was thinking about the life insurance fiasco a new client found themself in. As is commonplace, they trusted the agent to listen to them, understand the market and available products, and lead them in making good decisions centered around a product that was right for them and their goals.
And why wouldn’t they? The agent was referred to them by a trusted source and there are a lot of good financial professionals out there. One can go through life cynical and suspicious of everyone, but sooner or later you have to trust someone.
I think about the last time I was in a car dealership. My son needed a car, and after doing a lot of homework, we found a low mileage two year old midsized SUV that would be perfect. We went to the dealership and proceeded to buy the vehicle. Then came the inevitable process of paperwork, financing and pitching warranties.
Being from the finance world, I came in knowing exactly what the numbers would be based on various loan rates and payment options. When the numbers were presented to me, they made no sense whatsoever, they were way too high. I related this to the sales person and he feigned disbelief. I pulled out my HP12C and did the keystrokes in front of him. I said “This is what the number is supposed to be. Get me that number and we’ll move forward.” Of course, he had to go discuss it with his boss and came back with my numbers.
They were going to hose me. This was a big name, legitimate dealership in town. Customers have reason to trust them. Certainly, they wouldn’t overtly charge a much higher loan rate than what they were advertising and directly told me, right?
All I can think of is every customer who doesn’t understand finance and how to use a financial calculator, which is a vast majority of them. This is why there are so many people I work with who have been taken advantage of by the life insurance industry. They have no ability to know any better. They may have also been referred to the advisor and the insurance carrier on the card, or on the ledger presented to them, is a big name company they saw on TV during the game just that past weekend. Why on earth wouldn’t they trust them?
This is a very significant question without a clear answer. Even if a vast majority of agents are good people trying their hardest to do the right thing, we all know a certain percentage of them aren’t. I’m involved with a lot of litigation support and see a bit of everything. It ranges from uneducated agents, possibly victims of institutional indoctrination who simply don’t know any better, to modest tweaks that benefit themselves financially, to misrepresentation to outright fraud.
The bottom line is that I’m not sure consumers have the ability to know any better. We can argue that they should, but that’s unrealistic. You might as well argue that they can diagnose and fix their own car, fix their own computer issues, replace their own roof, or whatever. Some can, but most cannot. Everyone has to find someone they trust.
The point of this piece isn’t to provide answers. It’s only to ask the question. Think through this and let me know how you would advise a consumer to evaluate the competence and integrity of agents they are working with.
