Time flies when you’re having fun, so it’s because the opposite is also true. Incredibly for me, more than two years have passed since I wrote this article on Predictions on How Insurance Can Integrate With Wealth Management.
I love the insurance industry. It ain’t puppy love when I first took the leap into leading my own insurance business. It’s not a coming-of-age identity struggle as my career progressed and I had to decide whether to focus my energies on operations or strategy. Now, I’m talking about mature love. When you love something the way I do in the insurance industry, you don’t care about it in your spare time. You want to see it flourish at its best. Frequently.
The insurance industry is in an awkward position. The product suffers from commodity commodityisation, prolonged low interest rates, regulatory mandates inconsistent with insurance distribution, non-traditional entrants affecting tax and capital arbitrage, and generalized disruption. In advising my insurance company clients on how to get out of these situations, I often sympathize with Bill Murray’s character in Groundhog Day. Unless we start accepting, and perhaps even embracing, change, we will be stuck in an endless loop where insurance is treated as a commodity and where delivery is costly (which makes products expensive). !) In this world insurance remains isolated from an increasingly integrated, fintech-driven, fee-conscious, financial advisory community.
State insurance regulation governs the conduct of agents and insurance brokers. It also needs to be adapted to control RIAs. Insurance advice is a premise distinct from insurance sales, such that there is a major difference between the consumer experience of advice versus the sale of securities. While some insurance professionals already consult on or about contracts for consumers, and are legally charged to do so, this model is not mainstream for insurance distribution. Insurance regulation currently takes place at the point of sale and does not consider ongoing advice. To do this it must be optimized. Such adaptation would facilitate change as both insurance, meaning liability management, and money management disciplines.
There is no direct consequence of the ’40 Act’ for insurance. There is no national authority that can define the meaning of the term “insurance advice(o)er”. There is no independent national source that financial professionals can rely on for accurate annuity conduct, oversight and advice.
We are all receiving a high amount of rapidly changing regulatory guidance. It’s not always clear how this applies to the nascent world of “insurance advice.” I sympathize with advisors who tell me that there is no place they feel they can turn to for definitive guidance about their responsibilities for the various forms of annuity transactions. To try and help mentors who feel like it, I’ve compiled the table below. This is not legal advice, but I hope it gives a starting point for wider discussion in the industry.
Michelle Richter’s Non-Lawyer Best Estimates on the Applicability of Different Laws to Different Types of Annuity Transactions. Feedback is welcome, especially from financial regulatory lawyers!
I have never been more optimistic that the environment, now, is here to make our case that insurance products, in terms of overall managed lifetime wealth (not assets!) optimization, have both psychological and quantitative outcomes for many. Can improve a lot. customer.
Our industry faces a material obstacle in convincing RIAs that there are sources from which they can obtain reliable information about annuities. From practical problem solving to regulatory concerns, from suggestions from fellow advisors to summaries of cutting-edge research, advisors need sources to focus on: in managing money (not assets!). Develop our practices by using insured solutions to achieve better-for-you customers, and not on the premise of having lower cost-results for your customers and their families, but by incorporating more definitive features.
I emphasize the difference between wealth and property. Wealth management, which means managing the nexus of asset management and liability management, and asset management are, of course, separate disciplines. More about that distinction coming soon!
Michelle Richter is the founder and principal of fiduciary insurance servicesand Executive Director of the Institutional Retirement Income Council
