“If there's no need for liquidity, we don't want our customers to put money into permanent life insurance. We want that money here as assets under management.”

I first heard this over 30 years ago from an investment advisor who did not sell life insurance. I understood their point of view. Fast forward three decades, and I still hear the same refrain from that type of counselor. But especially, I also hear it from or about investment advisors and financial planners who also do, or at least can sell, life insurance. And this sets the stage for a discourse that, beyond being of great commercial interest to the advisory community, is absolutely critical to clients who need life insurance advice. Here's why.

State of Incorporation

in “Life Insurance Planning for the Simply Rich,” “A boomer at the crossroads of a vintage policy” and other articles, I have written about how advisors whose repertoire includes life insurance can show their clients the many benefits of including cash value life insurance in their plans. While I've never had a crowd control problem from readers providing comments on articles, I have discussed them with several other agents and advisors. Recently, the feedback has taken a noticeable turn, which goes something like: “No matter how solid your advice may be, more advisors of this demographic who can sell (or arrange to sell) permanent life insurance life they will not do that. . In your financial planning parlance, they will not introduce permanent life insurance to address the issues these clients will encounter as they move from the accumulation phase of their financial life cycle to the conservation phase. It's just not a conversation that serves the interests of those advisors. Yes, they will sell term, disability and possibly long-term care insurance to address specific needs, but not permanent life insurance. We both know that some 'observers' will be quick to judge the motives of those advisers. But they need to hear the advisors' side of the story first, because they likely have a lot to say.”

The question presented

Let's start with the implications for clients of an approach to planning that prioritizes assets under management. I was taught that one of the benefits of working with a financial advisor is that they can show the client how the three phases of their financial life cycle—accumulation, conservation, and distribution—are not completely separate and distinct. Rather, they are part of a continuum, with no clear lines denoting when one stops and the other begins. Because those stages are a continuum, the counselor can show the client how the planning they do today can predict and facilitate the planning they will need to do tomorrow. For example, a client in the accumulation phase can do risk management, retirement and tax planning in a way that can make those components of planning in the next phase easier, cheaper and, arguably , less stressful.

So, at first blush, one might reasonably ask. “How can an advisor who is not going to offer permanent life insurance take a comprehensive and objective approach to helping clients navigate that continuum in the way that I describe? How does that advisor respond when a savvy customer asks, 'What happens when the term policy you recommended is up and I still need or want the coverage but can't replace it for whatever reason? I may be in the proverbial creek. Wouldn't it make sense to protect against that risk by at least having non-survival coverage? If I use term insurance, I would manage the risk for the near term, but bear it for the long term. Besides, I've read enough to know that a good policy from a solid company can be a pretty useful asset for all kinds of reasons at that point.'” Fair points, don't you think?

The counselor answers

I feel that the adviser, that is, the one who will not recommend permanent insurance, will have at least a three-part answer. First, they will say that based on their conservative projections, by the time the carefully selected term policy runs its course, the client's net worth will be more than enough to eliminate the need for insurance. Second, they will express a lack of confidence, borne out of experience, in the ability of permanent life insurance to play a strong supporting role in their clients' plans. Life insurance has become too complicated, service-intensive and, frankly, generally problematic to be in their client's best interest. Third, they will explain that, as businessmen, the realities of their economic practices and the need to manage their risks tell them to move away from an area they believe contains multidimensional risk.

The bottom line is that this type of advisor sees many factors that militate against including permanent insurance in their clients' plans. Yes, they can bring in a specialist or insurance company to handle this aspect of the plan, but I doubt they will conclude that doing so will only put them back where they didn't want to be in the first place, which is selling (or relating to the sale of) permanent life insurance. In the end, they will tell their customers. “We are bound by our rules of engagement and our industry guidelines to show you this approach for your consideration. But we don't recommend it for the reasons we discussed.” In this way, by at least putting the concept into play as a step for the client to consider, the advisor should be less open to second-guessing, or worse, by the client or their advisor. And with all that's going on in the financial services industry regarding fiduciary duties and best interest, this is a smart move.

As comprehensive and nuanced as that three-part answer is, there will be those who counter with, “Take a break! It's about AUM, period. It's about building your revenue and your brand.”

That said, there are some practical reasons why an approach that includes permanent insurance in the plan may be a non-starter, regardless of the advisor's perspective. First, the customer's health may prevent them from qualifying for a well-priced policy. For another, the customer may balk at the idea of ​​”investing” in a cash value life insurance policy.

Will the positive side of the advisors be negative for the Client?

Although I am fascinated by him, I have no interest in the outcome of this discourse. I'm just a commenter, not someone trying to run a business. But I will tell you who has a stake in that outcome, and those are just good customers. That's because the ranks of professionals who can and will provide quality life insurance advice and then sell and service the right products are rapidly dwindling. However, I can't think of a time when the merely wealthy needed advice and products more than today. If I had a solution to this dilemma, I would offer it. Maybe those who are more creative than me can help.

Charles L. Ratner writes about life insurance and estate planning, and is based in Cleveland, Ohio.