Specialists Should Exercise Temperance in their Advice

I was on a podcast recently to discuss my latest white paper on Fiduciary Duty and the question often comes up: "What should a prospective client look for in a quality advisor?"

And the more I consider that question, the harder it often gets to answer it. Licenses alone are not a test of character, competence, or ethics. The same holds true for designations, association memberships, religious affiliations, and more. Lately, I had been determining that a true test was where the consumer can tell that the advisor is doing this FOR them, not TO them. This isn't a very quantifiable metric, but it is important.

On the podcast, I also mention that an advisor will disclose all the possible 'downsides' to their recommendations and how they may or may not apply to a client's particular situation. One such example is annuity surrender charge schedules. It needs to be a factor when determining a client's need for liquidity and disclosing the consequences for withdrawals above the 'free withdrawal amount.' It can be costly to the client if the need for liquidity is underestimated.

Today, I was on a LIVE group chat on TikTok with other financial professionals. We discussed how some products may or may not apply in certain circumstances.

---

A 'salesman' will try to sell what they want regardless of the circumstances (although pending suitability review, etc.). They often 'over-sell' and will have higher policy lapses and probably a shorter career as a result.

---

The word 'temperance' came to mind. I posted the definition in the image above: "the quality of moderation or self-restraint."

So with that in mind, a great question to ask someone would be: "Under what circumstances would you NOT recommend this product or strategy?"

Pay attention to their answers. How do they exercise restraint in the advice they give?

I love cash value life insurance. I love what this contract can do when combined with the understanding of the tax code. My enthusiasm for it is practically contagious! But that doesn't mean it's for everyone. (Btw, nothing is for 'everyone.')

Under what circumstances would I not offer it?

1. If the client just can't get their head wrapped around it. If they can't understand it or see how it can benefit them... we won't do it. I'll take it off the table. A quality term insurance contract is perfect to protect them and their family and we can discuss conversion to a permanent plan at a later date. I don't want the policy to lapse and I don't want a client to feel that they overpaid.
   

2. If their retirement assets are under $500,000. Now this is a combination of age and assets. The younger they are, this doesn't apply quite as much. But if someone is nearing their 60's or so and they aren't at the $500,000 mark in their qualified retirement plans... the current tax code and the math doesn't necessarily match up for a cash value life policy's tax-exempt cash flow to make them better off. While it may insulate them from future tax increases, I believe it's doubtful that those tax increases will affect them at their income and asset level. This is why it may not make the most sense. An annuity with a lifetime income rider, or a series of multi-year annuities for lifetime income may make more sense (and usually far easier for the client to understand).
   

3. If their current financial status just doesn't warrant it. This is similar to the above, but I'm looking at the whole picture here. Robert Kiyosaki wrote that there are three kinds of financial plans:
   

   • Plan to be Safe & Secure

   • Plan to be Comfortable

   • Plan to be Rich

   Financial advisors don't make anyone rich (I'm sorry to burst your bubble). Advisors can help wealthy people preserve their wealth, but planning doesn't make anyone wealthy. Wealth usually comes from businesses and investing in such businesses. Real estate is one such business. In planning to be comfortable, there are MANY ways to help people plan to be comfortable, particularly for retirement. Cash value life insurance can fit very well in this stage of planning. In planning to be safe & secure, we are insuring against losses: loss of income, loss of a family member, loss of savings, and more. For this stage of planning, term life insurance fits very well here. It is the least expensive way to secure a large block of coverage for a given period of time. Disability "paycheck" protection fits well here as well as basic savings plans and maximizing one's government benefits. Unless one is getting a smaller 'final expense' kind of policy (no more than a $50,000 benefit), cash value life insurance doesn't belong here as it's not the most efficient use of savings funds at this stage.
   

4. If we just don't get along well, or we have serious incompatibility. Now that's kind of a rare one as I'd like to think I can get along with most people. However, if a situation is just incompatible, hopefully I discover it well before a client relationship is created and we just part ways.

So for a great question to ask agents, advisors, and consultants: "Under what circumstances do you not recommend these products or strategies?" and listen for their answer and the mindset behind why they may not make such recommendations.

If they have a thoughtful answer, you know they've given this quite a bit of thought and consideration. If not, you may have a salesman on your hands who may be doing this TO you... instead of FOR you.