DOL Fiduciary Discussion RE: Use of Term Advisor

In a recent article about the DOL fiduciary rule proposal on, Michael Kitces, a partner at Pinnacle Advisory Group, brings up a very interesting point: the multitude of ways that financial professionals represent themselves to clients and prospects, particularly in the titles they use, and the description of services they claim to offer.

In the article, Mr. Kitces is quoted saying, “How often do you see ‘stockbroker’ on a business card anymore? You don’t. You see ‘advisor.’ We’ve allowed the sales people to communicate to the public that they are in the business of giving advice. And then we have not held them accountable for doing so.”

Gone are the good old days when an insurance agent calls himself or herself just that – an agent. The term “advisor” is used indiscriminately by so many professionals, very often in an inappropriate manner. Individuals who sell insurance products for commission, who are not registered as an investment or financial advisor, do not provide “advice” (at least, they shouldn’t, unless it is incidental to the sale of the insurance product they are recommending).

In fact, the NAIC advertising model regulation for life insurance and annuities, in an attempt to draw the distinction between insurance agents and financial advisors, specifically includes language in the regulation, which reads, “….No insurance producer may use the terms, such as “financial planner”, “investment adviser”, “financial consultant”, or “financial counseling” in such a way as to imply that he or she is generally engaged in an advisory business in which compensation is unrelated to sales unless that is actually the case.”

Have we, as an industry, helped create our own mess here? It’s hard to say for sure, since, as Mr. Kitces calls out in the article, this point has not been raised by the DOL as part of the proposed rule discussion. The article states, “While no fan of the DOL’s proposal, Kitces shares a perspective with those lobbying hardest on Labor’s behalf: after years of the SEC’s failure to adequately enforce the ’40 Act, consumers can no longer tell the difference between broker and advisor.”

But it certainly begs the question. Had the SEC and the state insurance divisions better enforced this issue, had the industry done a better job of self-regulating ourselves in this regard, what would the DOL proposal look like today? Or would there even be one?

Read the full article here... “DOL fiduciary rule puts broker-dealers in Catch 22”

Licensing issues should be included in the debate about fees

Our Advertising and Producer Compliance Department has regular conversations with various interested parties about charging fees and/or commissions, services provided and the related licensing and certification issues. In our reviews, we question the term “advisor” when used by individuals who possess an insurance license but do not have their Series 65 Investment Advisor Representative license.

Given the blurred lines and confused analysis we sometimes see, I was disappointed that a recent article in a trade publication (My Big Debate With Fees, Juli McNeely, InsuranceNewsNet, January 2013, page 32) did not address these and related compliance issues that should be part of the decision-making process. Ms. McNeely discusses the dilemma faced by an independent agency over whether to move from a commission-based to a fee-based structure but completely failed to mention the licensing issues involved. It appears from her brief bio that Ms. McNeely does have the licensing (RIA) and certifications (CFP, CLU, LUTCF) to provide a wide range of services to her own clients and community. Her internal debate, as described publicly in the article, does not point out to her readers that the only reason this option is open to her is because of all the work she has done to obtain these licenses and certifications. There is no easy way to get to that place—no shortcut. One must do the work and master the necessary material. It is because she has made this commitment to her career and has put the time and effort into obtaining these that she is in a position to confront and debate the fee issue.

The article presented the choice as absolute: fee-only or commission-only. Not all producers see it that way. In the article, Ms. McNeely looked at the choice—one or the other—from a purely business perspective. However, there are compliance issues involved with the change as well that must be considered. There is no mention of fiduciary obligations or licensing prerequisites. I would like to have seen a mention of some of the non-financial issues involved in this choice.

From a compliance perspective, a complete change from one compensation approach to another (as is apparently contemplated in the article) is cleaner than when a producer charges a fee for some services while also selling insurance products on a commission. An insurance office adding fee-based services needs to be very clear about what falls into each category of compensation and also that the appropriate licenses and certifications are held for all activities. Staff and clients have to clearly understand what falls into which category of compensation and what personnel is licensed to do what. Even if all licenses are held, IAR/RIA as well as an appropriate insurance license, there is a significant challenge to make sure that no fee is charged for those services which are generally considered to be compensated through the commission paid on insurance products.

It is our recommendation that any firm looking at these issues and alternative methods of compensation look at the business issues as Ms. McNeely does, but also a variety of compliance issues that inform and flow from the various choices. But beyond that, we also recommend looking at these compensation issues on an on-going basis as part of a regular, compliance audit program.

Advisor or Adviser?

In our review of insurance advertising, we often see both Advisor and Adviser used, usually following “Financial.” We comment on the use of the term Financial Advisor/er in the context of an insurance-only producer, and on the potential confusion that term can create in the mind of a consumer. But beyond that, I have to confess that I react more positively to Advisor than Adviser. I know that both are acceptable, but I continue to react.

So this morning I gave in to the desire to research and see if there was any basis in grammar or usage that would justify my emotional reaction to one spelling version over the other. My Google search indicated I was not the only one thinking about this. One discussion on Yahoo! Answers resulted from Firefox and other spellcheckers’ preference for Adviser, though the person asking the question, like me, preferred Advisor. The answer to the question discussed the equal treatment given in the standard dictionaries, but said a Google search found that Advisor returned 85,100,000 pages compared to only 21,500,000 for Adviser. Since this was not a particularly recent discussion I decided to try it myself. Today my search results were 801,000,000 for Advisor and 76,300,000 for Adviser. Vindication! I am in the majority with my preference for Advisor.

But I also learned something else. Google has a Google Advisor (note: Advisor) and it is described this way: “Google Advisor makes it easy to find financial offers from multiple providers, compare them side-by-side and apply online.” Who knew? Unclear whether “financial offers” might include insurance, I took a trip over to Google Advisor. There I found easy comparisons in the categories of credit cards, CDs, and checking and savings accounts. I am very curious how long it might be before Google Advisor adds an insurance component as well. It is hard to imagine they haven’t looked at it yet.