by Guest » Fri Sep 07, 2007 09:20 am
Hi friends, I've heard that Equity indexed universal life insurance can be a very good investment option. I want to purchase a policy that will give me some investment benefits along with life coverage. Shall I consider buying EIUL or something else? Pls. suggest.
Jeremiah
Jeremiah
Posted: Wed Jul 21, 2010 10:06 am Post Subject:
Wait a second, Max. You are the one who is saying that they CAN'T be described as investments. Your quote doesn't say that. Look it closely. It is talking about misrepresentations and ommissions. The problem with NASD 2210 and 2310 wasn't in the describing of the products as investments. The problem was in saying that they were not insurance products. They clearly are insurance products and this must be mentioned. That is not the same as saying that they can't be called investments.
The bottom line here is that despite your claim there is nothing that says that they can't be described as investment products, but, of course, the insurance component must be disclosed. This is legal:
"Let's take your 401(k) and roll it over and invest it in a variable annuity with XYZ Insurance company. The way it works is..."
Again, I agree that it needs to be described as an insurance product, but that is very different than saying that it can't be described as an investment product.
Posted: Wed Jul 21, 2010 11:19 am Post Subject:
With lots of jargon and discussion can somebody (either Maxx or fjakruak) come to some common conclusion?
Both have to agree on one single issue that legally they can market VA as an insurance product as well as an investment product.
But the fine line is no insurance agent (with few exception) bothers to explain in detail to their customer about the exact purpose of VA.
(Even customers are also not in mood to hear a big lecture just to purchase a policy from insurance company.They prefer it to handled by their representative.) and Most of the time their representative is their insurance agent only.
and thus all it becomes more difficult to educate a customer on the subject matter.
Although This may be a diversion from the topic of legal /illegal insurance/investment topic.But i think that was well needed.
DIMG
Posted: Wed Jul 21, 2010 02:24 pm Post Subject:
DIM, I believe that Max and I have a common conclusion that all material facts of these products should ALWAYS be disclosed and the agent/rep has a responsibility to make sure the client understands what they are buying and the agent/rep has to make sure that the product is in the client's best interest.
Our disagreement is a legal one. I agree that a VA and variable life can be marketed as both an insurance and an investment product. Max is saying that it is illegal to call it an investment product.
Posted: Wed Jul 21, 2010 02:29 pm Post Subject:
Both have to agree on one single issue that legally they can market VA as an insurance product as well as an investment product.
The primary MISUNDERSTANDING is that variable contracts are not an "investment product", they are "insurance contracts with an investment component." The SEC of late, has chosen to use the term HYBRID INVESTMENT which seems to contradict FINRA's discussion of the product, but the SEC's Rules are clear: the products are a "security" -- mutual funds are a "security", stocks and bonds and options are "securities". And all "securities" are regulated products.
That's fine with me, SEC regulates "paper", FINRA regulates "people" -- and it's the people who push the paper that need to push the paper properly.
So what does FINRA say about pushing the paper? If you have no need for life insurance, FINRA's "suitability rules" prohibit the recommendation of such products to you because they are far more costly than mutual funds.
If you have little or no prior "real" experience as an investor (far more than merely a contributor to a 401(k) plan), variable insurance products are probably unsuitable for you as an investor. So how do you end up involved in one? An insurance agent who is also a Registered Representative tells you about a way "to invest your money on a tax-deferred (or, worse, tax-free) basis, borrow money tax-free, and leave money to your heirs tax-free." Sounds great! See any mention of insurance in that bit of dialogue? That's what's wrong.
Now, if the RR says it just a bit differently, then I have no problem with the rest of the discussion as long as it is accurate: "Mr. Prospect, our company has an insurance product called Variable [insert your choice of Annuity or Life Insurance]. Like our other insurance products it provides the ability to grow money on a tax-deferred basis, except that this product also includes a feature that allows your cash accumulation to be invested in our company's separate account. Your money will be invested in the stock market where it can rise or fall, and you could lose value over time, but it is also possible to achieve growth that exceeds the rate of inflation, which is often referred to as "a hedge against inflation."
Any problem with that? Not in the least, except that most agents are not trained to talk about the products as clearly as that. And it usually leads to big problems with the regulators when discovered. Just isn't discovered frequently enough.
no insurance agent (with few exception) bothers to explain in detail to their customer about the exact purpose of VA.
I'm not entirely sure that is an accurate statement, but sometimes people think they're getting a "trust" when they're only getting an annuity, which is clearly a different problem -- and it mostly involves fixed/indexed annuities.
But if it is accurate, then I don't know how a person could possibly make a PROPER decision to purchase one. And neither does FINRA when it files an enforcement action against the RR following its investigation of a complaint from a public customer. Just have to look at the long list of enforcement actions FINRA takes on a regular basis, resulting in suspension of or revocation and bar of RRs who make "unsuitable recommendations", which can include marketing a variable insurance product as an investment rather than as insurance.
The words of the "Notice" referred to previously (which are akin to a state's Insurance Regulations that enforce the state's Insurance Code) are not unimportant. They are GUIDANCE in how the firm and the RR are supposed to perform their duties properly and responsibly.
So here's the definition of ANY annuity, fixed or variable:
The purpose of any annuity is to provide lifetime income to the annuitant. Can an annuity do something in addition to than that? Yes, there can be annuity provisions that allow limited access to money in the contract without a surrender penalty, or guaranteed withdrawals without having to annuitize, even a guarantee of income perhaps without annuitizing, but the FUNDAMENTAL purpose is to create a contract between the insurer and the owner that, if annuitiized, will provide lifetime income to the annuitant, no matter how long that is. No other product in the financial services arena can make that same promise.
And the agent/RR should also add, for the informed benefit of the client, that, "Once you put money into an annuity, there is NO WAY to take money out without an income tax liability. Not you and not your beneficiary."
Having said that, the RR can properly say that, "A variable annuity MAY provide an advantage over a fixed annuity because the owner has the ability to directly affect the cash value during the accumulation phase of the contract. By directing the cash assets into a WELL-DIVERSIFIED mix of the available subaccount options in our company's separate account, it may be possible to achieve a rate of return that exceeds the rate of inflation, which can more than preserve the purchasing power of the future value of the contract. That can be an advantage of the contract."
[[ There are certainly ways to economize on the words one chooses to use, but all of the points above must be covered. ]]
"On the other hand, Mr. Client, failure to monitor one's subaccount performance can result in a loss of principal, thus negatively impacting the future value/purchasing power of the contract."
To discuss it in those explicit terms should provoke one of these two responses: (1) That's exactly what I'm interested in, or (2) I don't want anything like that. But could also invite, (3) Can you explain how it works? That's a good thing, and it's up to the RR to do a good job of explaining in order to "close the sale".
But even when interested, if a person is unable or unwilling to manage their contract appropriately, it is inappropriate for the RR to recommend the sale of that product to the customer (applies to either VAs or variable life insurance products). A fixed product could be the suitable recommendation.
Even customers are also not in mood to hear a big lecture just to purchase a policy from insurance company.They prefer it to handled by their representative . . . and thus all it becomes more difficult to educate a customer on the subject matter.
Really? If that's true, then a VA/VLI/VUL transaction with that customer is UNSUITABLE and could cause the Registered Rep to lose his/her securities licenses, and the member firm to be sanctioned for failure to supervise.
An ethical agent/RR will turn that business away. Unfortunately, there will always be an unethical one willing to take it. Both the customer and the agent will get what they want, and it could also be wrong for both.
the topic of legal /illegal insurance/investment
Perhaps this is where the misunderstanding lies. No one, least of all me, has said that the SALE of variable insurance products is UNLAWFUL . . . but they are NOT, according to securities law, to be MARKETED as "an investment."
[[ You sometimes see FINRA actions against a RR for recommending the "sale of unregistered securities" but not the "sale of unregistered investments" because there is no such thing. ]]
Does it happen frequently? Absolutely! Should it happen? Absolutely not! There are no Securities Policemen looking over the shoulder of every RR during their sales presentation. Other FINRA rules place the burden for that on the "Principal" responsible for approving the trade. It's one of the reasons that more and more insurance companies are creating "suitability" forms that must accompany the applications.
Can any of this stop the RR from misrepresenting the product to the customer? NO. Only the RR's ethics can do that. But, if the RR also deceives the Principal by falsifying the suitability paperwork, guess what? The FIRM is subject to sanction as well for its FAILURE TO SUPERVISE its RRs. And there are plenty of enforcement actions against FINRA member firms on that basis, too.
One last time: According to a proper understanding of securities laws, any variable insurance products must be described as an insurance product with AN INVESTMENT COMPONENT.
I'm not here to convince you, but I am here to educate you. You have to convince yourself. As the proverb states, "You can lead a horse to water . . . "
Posted: Wed Jul 21, 2010 02:34 pm Post Subject:
I believe that Max and I have a common conclusion that all material facts of these products should ALWAYS be disclosed and the agent/rep has a responsibility to make sure the client understands what they are buying and the agent/rep has to make sure that the product is in the client's best interest.
100% CORRECT!!
Posted: Wed Jul 21, 2010 07:54 pm Post Subject:
Really? If that's true, then a VA/VLI/VUL transaction with that customer is UNSUITABLE and could cause the Registered Rep to lose his/her securities licenses, and the member firm to be sanctioned for failure to supervise.
It is really not possible for the person who wants to purchase a life insurance product to go through all the details provided in the application form and most of the time they just keep the trust on the agent itself about the features of the product.
I was describing customer's approach in that regard.There are plenty of customers who do all the research b4 purchasing the insurance policy.But if you compare this in terms of % with common guys who just buy their insurance policy on someone's recommendation, it will be very less may be not more than 10-15 %.
So there won't be any instance for cancellation of license of agent/firm just because I trusted the agent for the time being and there is no proof in writing whatsoever.
I'm not here to convince you, but I am here to educate you. You have to convince yourself. As the proverb states, "You can lead a horse to water
We are all here to debate on the topic in a positive manner so that we can share our thoughts/ideas related to insurance.No one is horse and no one is horse-rider either.It is just a plain sharing of thoughts among professionals.
DIMG
Posted: Wed Jul 21, 2010 11:35 pm Post Subject:
So there won't be any instance for cancellation of license of agent/firm just because I trusted the agent for the time being and there is no proof in writing whatsoever.
Tell that to the RRs who have been barred from the industry for violating a customer's trust.
It is really not possible for the person who wants to purchase a life insurance product to go through all the details provided in the application form and most of the time they just keep the trust on the agent itself about the features of the product.
Are you speaking as an agent or a client? I cannot tell. Are there persons who sign blank forms and let agents fill out applications? It's been known to happen. There are plenty of persons who have been encouraged to do so, only later to come to their senses -- usually after it's too late. But if you're speaking as an agent, it is your public responsibility to disclose -- not just the positive features of the contract, but the negatives as well.
The FINRA Rules on marketing and suitability and supervision are in place in an attempt to prevent all that. The variable products we are discussing are too complex for most clients to fully appreciate. They make decisions to move forward because agents run slick hypotheticals touting the INVESTMENT side of the contract, and those same agent perhaps are either failing to disclose the insurance aspect of the contract or downplaying it in a manner that places the emphasis on the INVESTMENT component, which is clearly a marketing violation.
Posted: Thu Jul 22, 2010 03:38 pm Post Subject:
Are you speaking as an agent or a client?
Although I am an agent currently but I said that from the point of view of a customer,as that of I am a customer.
Are there persons who sign blank forms and let agents fill out applications?
Yes,There are plenty of them.Even some guys do ask so many questions personally to the agent but never bother to go through 'official application form' just because they assume that I have asked plenty of questions to the agent so whatever he has told must be true.
But it is the moral integrity of the agent to explain to customer WYSIWYG.Rather a step further I will say that it should be 'What I Say Is What You Get'(WISIWYG).Then surely agent (or RR) will be acting in the benefit of the customer,responsible for the customer delight.
The variable products we are discussing are too complex for most clients to fully appreciate
Its True.I agree with the statement.
The FINRA Rules on marketing and suitability and supervision are in place in an attempt to prevent all that.
Truly an insurance product should be marketed as an insurance product first and if there is any investment component attached with it then it can be mentioned.
But Most of the agents (or RR) put more emphasis on the investment part because they are doubtful about sale of the product only on the basis of insurance talk.
DIMG
Posted: Thu Jul 22, 2010 05:20 pm Post Subject:
Any communication discussing the tax-deferral benefits of variable life insurance should not obscure or diminish the importance of the life insurance features of the product. Any variable life insurance communication that overemphasizes the investment aspects of the policy or potential performance of the subaccounts may be misleading.
(emphasis added)The statement above comes near the end of NASD Notice To Members 00-44.
But Most of the agents (or RR) put more emphasis on the investment part because they are doubtful about sale of the product only on the basis of insurance talk.
If that's true, it is a clear conflict with the NASD/FINRA Rules regarding suitability and marketing of variable insurance products. And guess what? If it can't be sold to the client on the basis of its being an insurance product, IT IS NOT SUPPOSED TO BE SOLD TO THE CLIENT. If that matter comes before FINRA, the RR is going to be hammered for making an "unsuitable recommendation" and could lose his/her license temporarily or even permanently.
Even some guys do ask so many questions personally to the agent but never bother to go through 'official application form' just because they assume that I have asked plenty of questions to the agent so whatever he has told must be true.
Ethics, morals, and integrity aside, conduct like this is not in the best interest of one's clients. When a client signs an application, they are acknowledging that everything in the application is true and complete to the best of their knowledge. If the agent inadvertently misrepresents a material fact, it could cost the client the loss of his/her coverage, and expose the agent to an E&O claim.
Similar actions on the part of agents have cost insurance companies millions of dollars in regulatory fines and other sanctions. It is not a "best practice" and I personally do not know any agents who conduct their business in this manner. I have worked for an agency that was involved in obtaining insurance for corporate executives, and we would send applications through the mail, but we never had clients sign blank forms, fill them out in absentia, and submit them to the insurers without the client's prior approval.
I will say that it should be 'What I Say Is What You Get' (WISIWYG).Then surely agent (or RR) will be acting in the benefit of the customer,responsible for the customer delight.
You don't really mean that, do you? The client gets what the CONTRACT states, not what the Agent says. To lead a customer to believe that the words of an Agent that are in conflict with the contract (that's never happened before? :lol:) have greater importance than those of the contract is a serious flaw.
And I want to return to this comment:
It is really not possible for the person who wants to purchase a life insurance product to go through all the details provided in the application form and most of the time they just keep the trust on the agent itself about the features of the product.
I don't subscribe to any philosophy such as that, and neither do any of the agents I know personally. In my mind, this is an agent's cop-out. It's about the same as saying to the client, "Look, Mr. Client, this is a very complicated product, so rather than explain how it works, and what you need to do to maintain it, just trust me when I say it's a great product and the right thing for you. So just sign here and make out your check."
I would not want as a client the person who accepted that kind of proposition. Because it's eventually going to come back to bite me in the butt. Look though some of the threads on this site where people complaint about what they believe the agent did to them or a relative. Maybe true, maybe not, but in our industry, as a licensed person, we sort of have to accept that when a complaint comes in, we are guilty until proven innocent.
Because we're supposed to know better, and conduct ourselves on a higher plane!
[FINRA just announced that regulatory actions against RRs are now going to be made public information for TEN YEARS into the past. Whether positively or negatively adjudicated.]
Posted: Fri Jul 23, 2010 02:30 am Post Subject:
and I personally do not know any agents who conduct their business in this manner
I am not proposing that agents are doing their business in this manner.Rather plenty of RR's and some agents are in this process which have hardly any knowledge of insurance and haven't got proper training of insurance concepts/products.
Whether you agree or not there are plenty of guys who have partial knowledge (not even basic knowledge about product) about the insurance and they are selling.I was pointing that issue.
You don't really mean that, do you? The client gets what the CONTRACT states, not what the Agent says.
Agree. But when it comes to choose one suitable product from bouquet of products one need guidance from the insurance agent.Most of the time agent market that product where he is having good commission.So while in the process of marketing the product he may get the sale just because he has said in this VA product last year our company has performed xyz% and we will continue to do hopefully.
So here I come to the point....Agent disclose most of the points from the official agreement to the customer but not all the clauses. (even neglecting one clause can give a big toll on the customer's product performance).
I don't subscribe to any philosophy such as that, and neither do any of the agents I know personally. In my mind, this is an agent's cop-out
If client insist me to tell the product features,surely I will narrate the whole story about the product which is available in official application form but if he/she says that I have gone through your product information either through internet/friend I wont say there is any point describing the features again.
DIMG
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