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New Developments, New Ethical Concerns

The public sees advisors as highly skilled professionals. How does this affect your sales presentation?

By Frank C. Bearden, CLU, ChFC, Ph.D.

As our industry grows with new developments in products, services and market conditions, new ethical questions arise. You may find yourself wondering how to conduct yourself ethically in the face of these new circumstances.

There are resources you can turn to in times of change and uncertainty. These include the opinions of your peers, the codes of ethics of professional associations and, ultimately, your own moral values.

Things change
Let’s look at how your sales presentation has changed as new products have come along. Before the days of variable universal life, you typically made an ethical whole life presentation in three steps:

  • You clarified the client’s needs and wants.
  • You explained the policy benefits and provisions and provided a policy illustration at the current dividend scale.
  • You demonstrated how the policy fulfilled the client’s needs and wants.
The public is beginning to consider financial advisors on par with attorneys, CPAs and physicians.

This type of presentation was ethical. You treated your client fairly by providing thorough and accurate information for him to consider.

After variable universal life, the ethical waters muddied as more product factors were involved. Clients became more financially knowledgeable and demanding. Your policy presentation had to change if it was to continue to be considered fair to the client. The steps have now expanded. They are:

  • Clarify the client’s needs and wants.
  • Explain policy benefits and provisions and provide policy illustrations. (Now, however, you have to show alternative growth rate assumptions based on sub-account recommendations.)
  • Provide and explain the historical growth rate of the sub-accounts and the prospectus.
  • Demonstrate how the policy fulfills the client’s needs and wants.

In this case, a new product has changed the way you make a presentation ethically and has added an extra step in the process.

Fair pay
Sales presentations aren’t the only things that are evolving because of ethical concerns. Compensation is, too. Compensation is usually not seen as an ethical issue, with one exception: If compensation from commissions results in you selling an inappropriate or noncompetitive product to a client, you may not be acting ethically.

But the increase in fee-based compensation has brought the way advisors get paid into a different light for consumers. Financial advising is becoming viewed by the public as a professional service. Highly visible advisors and their professional associations, such as NAIFA, are promoting the quality of this type of financial service, and the public is beginning to consider financial advisors on par with attorneys, CPAs and physicians.

Your clients are accustomed to paying these other professionals for the services they provide, and with time will naturally assume they’ll have to pay for your advisory services. But they’re also going to ask us two questions: What am I getting in the way of service? And what am I paying to get it?

When a client asks you these questions, you have an ethical issue to resolve. Keeping in mind the issue of fairness, you have to honestly ask yourself, “What kind of service and how much of it do I need to provide my clients for the fees I charge?”

Structuring fees
You have to consider several factors as you decide on how much to charge your clients. These include:

  • Compensation consists of fees and product commissions. One charges a client directly, the other indirectly. But your client ultimately pays for either one.
  • It’s up to you to decide how much you will charge. There are no rules and few guidelines. You only have to satisfy the ethical requirements of one person—you.
  • What is the nature and true value of the services you provide? Remember, your clients cannot do for themselves what you do for them. In this sense, they are at your mercy.

From a competition angle, it helps to research what your peers charge for their services and structure your fees similarly. The difference your clients will notice is in the value you bring to them.

Frank C. Bearden, CLU, ChFC, Ph.D., is a field manager, financial advisor and agent in San Antonio, Texas. You may reach him at

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