Series 65

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.