By Terry K. Headley, NAIFA President
A recent article by Wall Street Journal reporter Daisy Maxey about fee-only life insurance consultants is misleading to consumers, especially those who may come to the misguided conclusion that a fee-based consultant can offer a lower-priced life insurance product with identical benefits to that of an insurance agent representing an insurance company (or companies) on a commission basis.
Here is the reality: The consumer is getting the same product at the same cost, whether they purchase the life insurance product from a fee-only consultant or from a broker or agent. No fee-based consultant or agent compensated by commissions has the ability to negotiate the pricing of the life insurance product.
Ms. Maxey leads readers to believe that the fee-only consultant can negotiate a reduced or discounted premium with the insurance company by removing the agent compensation, thus, lowering the price of the life insurance product and saving the consumer money. In fact, all consumers are offered the same product at the same price. The idea that the consultant can remove agents’ compensation from the sales process is a myth. The truth is that the agent compensation is built in as part of the overall acquisition and total cost structure of every product.
Consumers who enlist the services of a fee-only consultant are not only paying the same premium for a given life insurance product that they could have obtained from an agent or broker, they also are paying for the consultant’s fee, which, according to Ms. Maxey, could range between $250 and $300 an hour, usually with a minimum fee involved.
How can fee-only advisors reduce a consumer’s overall premium costs? By redesigning the insurance program, which involves certain tradeoffs. The consultant is locating the lowest-cost product on the market, which may not be the best fit for meeting the consumer’s long-term financial goals and objectives. “Best” can not always be defined as the cheapest product.
With all the product variations and customization available today, including pricing, consumers need agents who can recommend a suitable product based on a thorough needs analysis of the clients’ financial goals and objectives. There is no “one-size-fits-all” approach to this important planning process. The agent, as part of the ongoing relationship with the consumer, would be accessible to assist in the servicing of the life insurance policy on a long-term basis whereas the fee-based consultant would only disappear after the policy is initially acquired.
My recommendations are based on a fact-based approach tailored to my client’s needs, wants, goals and objectives One thing that is not necessary for consumers is paying an additional fee for a second opinion that they don’t need.