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The Next Big Thing

The latest, hottest item on the market isn’t always the best product for your client.

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

We live in a time when information is abundant and new developments are always turning up. This informational influx can be both helpful and harmful to our professional lives. The sheer volume of facts and opinions to consider can strain our ability to approach trends ethically. If you are facing a potential information overload, the important question to ask yourself is: “Am I directing my practice by my principles or by just following the latest trend?”

An example
When Jerry’s financial advisory practice stalled, he decided to call his friend Lee, a financial advisor in another state. Lee’s practice had almost twice the revenue of Jerry’s, even though they opened their firms about the same time. Jerry’s revenue had hardly grown in the past two years, and so he wanted to know the secrets to his friend’s success.

After a few minutes of conversation, Jerry talked candidly about his situation. Lee offered to email his firm’s statistics for the previous year. “My only request,” he said, “is that this information stays with you. I don’t want someone I don’t know to see this.” Jerry readily agreed, appreciating his friend’s trust.

Two days later, when he reviewed Lee’s information, Jerry noticed that Lee’s revenue from insurance transactions was much higher than his. In fact, the difference in this area alone accounted for 30 percent of the difference in total revenue between his and his friend’s firms. Yet, Jerry had the higher the number of transactions in the past year.

“How is Lee placing almost 10 percent fewer cases of life insurance in his practice, and yet producing about $200,000 more than in commissions than me?” Jerry asked. “Lee must be using much more permanent life insurance than I am.” A glance at the policy type and life premium columns confirmed his hunch.

Fixing a mistake
Jerry’s recommendations of permanent life insurance for clients dropped off significantly a few years ago after he attended a seminar. There, the key speaker argued that with today’s sophisticated investment and term insurance choices, no one needed permanent life insurance anymore. The speaker supported this point with impressive tables and graphs illustrating that buying term insurance and investing the difference made more sense than buying any form of permanent life insurance.

The speaker’s approach troubled Jerry, but the appeal of a big increase in revenue was persuasive.

In addition, the speaker noted how much more buying resistance occurred with permanent insurance compared to term. The speaker concluded by pointing to his own and other advisors’ experience that commissions dramatically increased when recommending term alone.

The speaker’s approach troubled Jerry, but the appeal of a big increase in revenue was persuasive. From that day forward Jerry stopped advising clients to buy permanent life policies. Instead, he recommended 20-year or longer level term insurance with an accompanying investment. Initially his life sales increased, but in the second year, he found himself struggling to match the previous year’s commissions. He wondered if he had made a mistake, but nonetheless continued the practice.

Fads can be bad
In a subsequent phone call, Jerry asked Lee when he used permanent insurance. “In typical situations, with long-term or permanent need for death benefit, followed by some benefit from the cash values,” Lee said. “Nothing special, really, although the arrangements are sometimes a little complicated, when trusts or businesses are involved.”

But Jerry still was curious as to why the “buy term, invest the difference” argument seemed to carry so much weight. Lee responded, “My calculations have shown a modest amount of difference in cash value, with a big increase in discipline and inconvenience required of a client. And there’s still the fact that a permanent contract with premiums paid will pay a death benefit when needed. So I use competitive contracts and recommend permanent when it’s appropriate.”

But that doesn’t mean that term isn’t sometimes appropriate, Lee said, such as “when I recommend it, or a client won’t do anything else. I’ve paid some term death claims, so I know some type of coverage is certainly better than none at all.”

Jerry had been initially troubled by the trend of using term insurance alone, but he didn’t follow his instincts. Instead, he suspended his judgment in hopes of using the sales approach to increase his revenue. The presentation he attended had been persuasive, and he failed to question it, although he had some initial misgivings. Maybe he was motivated by the increase in business the speaker promoted. But by choosing to sell only term, Jerry became a trend follower, instead of a trend appraiser. In so doing, he violated part of the NAIFA Code of Ethics: “To fulfill the needs of my clients to the best of my ability.”

Fortunately, he realized his error. He resolved to return to his classic life insurance needs-analysis training and reacquaint himself with the permanent life contracts available. In the process he was sure his compensation would again grow.

Principles or trends?
A financial advisor who evaluates trends carefully is a trend appraiser. He subjects every new professional idea, no matter who promotes it, to ethical scrutiny. Discard any aspect of the trend that doesn’t satisfy your standards. However popular an idea is, it will serve no good purpose if it violates your ethical principles.

Frank C. Bearden, Ph.D., CLU, ChFC, is a field vice president who works with financial advisors. He lives in San Antonio, Texas, and is a member of NAIFA-San Antonio. You may reach him at


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