In Canada, for people in the life insurance business, the standard of service is changing. Sadly, it uses words and ideas that have little meaning. The principle is “client’s best interest.”
Now, that sounds pretty easy and I think any responsible professional has done it intuitively up to now. The problem will become in advisors expressing it in the same way as the regulators and the clients understand it. Assuming they understand it at all.
Here are some dimensions that seem unstudied:
- Does the client understand the idea of their own best interest? If no, then how is the advisor to know? I suppose they could use some sort of template that says this is the “balanced” idea or the game theory idea, or it probably won’t hurt them. The pity is that those ideas are not very durable if anything changes or turns out differently than the client expected. When the client has no firm idea to attach a method to, they will forget the details and only remember that it was supposed to work.
- Does the idea of best interest include a time element? With interest rates at historically low levels, many Universal life policies do not work as originally intended. Does that mean the sale in 1989 was not in the client’s best interest? Clearly some other plan may have worked better, but using only what was known the day it was arranged, what does it mean to discuss “best interest?”
- Does the advisor require universal knowledge of products available including ones that are proprietary and unavailable? If it can be shown that there was another product that was more in the client’s best interest somewhere in the world and it was unknown to me when I arrange any other coverage, have I failed to act in the client’s best interest?
- Does client’s best interest necessarily mean flexible enough to change as circumstances change? If so, which circumstances? If a product only works in a high interest environment and I can reasonably anticipate that such an environment will not persist, then I should not sell the plan. On the other hand what if I cannot anticipate the change or the client initiates the change? A divorce can alter the ability to pay and in some cases, the need. If a participating policy would entail a large loss to quit after a few years, is the advisor responsible? As circumstances have evolved, it is clearly not a policy that has turned out in the client’s best interest.
The regulators seem to be focused on things advisors and their clients should already take for granted. Define the problem. Assess resources. Assess the fit with other products or plans. Create options where possible. Maintain privacy and security. Comply with the laws of Canada. The undefined part is where the issues will live.
We should understand the motives of the standard promoters.
“If you disregard people’s motives, it becomes much harder to foresee their actions.” George Orwell
More thought is required or the answers to the harder questions will be established in court. No one can do more than deal with circumstances as they exist and are understood on the day the product is created. To deal with “best interests” is problematic because by itself, it does not form a complete thought.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. In previous careers, he has been a partner in an international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org