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  • Writer's pictureJay Judas

Tier One: Coming Soon to the Fiduciary COI - Acting in a Client’s Best Interest in a Life Insurance

Heightened fiduciary standards are closing in on centers of influence who share their clients with life insurance producers. Investment advisors and, more recently, those selling annuities have seen their client-facing behavior and compensation practices dictated by the Securities and Exchange Commission, the Department of Labor and by a majority of states who have adopted rules based upon the NAIC’s 2020 model entitled “Suitability in Annuity Transactions Model Regulation”. This era of new standards creates risk and opportunity for fiduciaries who rely on life insurance agents and brokers.

When a CPA, registered investment advisor (RIA), attorney or trust officer refers business to a life insurance broker or agent, how those selling life insurance can interact with clients have managed to dodge much of this regulation in most of the country. This will not last forever. New York State made the first attempt in this area with Regulation 187, a rule revised by the New York State Department of Financial Services in 2018 that ambiguously required agents to act in the “best interest" of consumers when recommending annuities and life insurance products.

Although the measure may have been well-intentioned, the flaw with the “best interest" standard is that it is nebulous and subjective and did not specify what actions or compliance measures are required and what behavior is prohibited. It was the regulation’s ambiguity which led a New York State appellate court to overturn the regulation; though, the regulation remains in effect during the appeal process.

When examining the latest state fiduciary duty developments for laws and regulations, life insurance is often mentioned but then the measures are usually restricted to the sale of annuities. In some instances, the audience is narrowed further to those selling annuities and having discussions around retirement planning and income.

What Fiduciary Standards are Coming to Life Insurance?

Based on Regulation 187 that still applies legally in New York (and applies ethically in all states) and the CFP Practice Standard that applies in all states, the roadmap for what the life insurance industry can likely expect has already been created for investment advisors and annuity representatives. Acting in the “best interest” of the client will mean not only offering the client the best product solution for their situation but being able to clearly state in writing about why the recommended product is best based on the care, skill, prudence and diligence of a prudent person while examining cost performance and risk.

Internal Costs

Throughout the UPIA, NYS DFS Reg 187, The CFP Practice Standard, FINRA 2210 and 2211 there are several common threads, and cost is perhaps of greatest importance. In a 2010 white paper, Morningstar stated, “If there's anything in the whole world … that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.”

This applies to life insurance. When was the last time an attorney, RIA, CPA, trust officer or other advisor looked at these costs for an insurance policy for a client based on the information provided to them or their client? Most likely, never, and this is not the fault of the advisor but that of the insurance agent or broker.

As an example, let’s look at a $5 million face amount policy with annual premiums of $37,796 on a 45-year-old male who is in preferred health and does not use nicotine. An average general account product from a randomly chosen carrier was selected and run at a 5.7% annual return, resulting in an internal rate of return at age 80 of 6.5%

The internal costs for this $5 million policy by age 120 are $6,521,946. According to T&E magazine, those costs vary by 40% off the mean, indicating that one insurer charges $2,608,778 more and another insurer charges $2,608,778 less for a total swing of $5,217,556. Using the care, skill, prudence and diligence of a prudent person, an advisor can save their client up to $5,200,000 in costs. Those costs accrue to the client and that certainly is in their best interests. This is an important part of the fiduciary and best interest regulations.

The Client

“Best interest” rules are intended to protect clients. However, to obtain the benefits of these rules, clients are going to have to know what to look for and what questions to ask. In effect, they will need to share in the burden of making sure the life insurance transaction is the best one for them. The next time they are approached by an insurance agent or broker, will the prospect or their fiduciary advisor ask:

  • Are you a broker or an agent?

  • If you are an agent, do you have access to other carriers’ products?

  • If you’re an agent and have access to other carriers’ products, are you compensated more in the form of cash or other benefits for selling the products of your captor?

  • Do you have securities licenses?

  • Tell me about how you analyze products for suitability?

  • What are the internal costs for your product and how do they compare to the internal costs of other products?

  • Will you provide me with a side-by-side comparison of various illustrations so I can compare the premiums, cash values and death benefits?[1]

  • How do you use the care, skill, prudence and diligence of a prudent person when evaluating life insurance, tell me about your prudent process?

  • Finally, when presented with the written reasoning for why a specific product or handful of products is recommended, does the industry vocabulary and complex product designs leave the client scratching their head instead of providing assurance?

The Registered Investment Advisor

RIAs are the group who already must act in the best interest of their clients by serving as a fiduciary. The extensive practices and recordkeeping required by the Securities and Exchange Commission to operate as a fiduciary may put RIAs at odds with helping their clients obtain needed life insurance coverage. How does an RIA know if the life insurance producer being referred will conduct themselves in a manner consistent with the RIA’s fiduciary duties?

Recently, LISG’s President & General Counsel, Pete Dziedzic, spoke with Steven Zeiger, Managing Director, KB Financial, Inc., a member firm of the M Financial Group. “Obviously, a primary reason an investment advisor refers a client to a life insurance producer is because life insurance is not their focus and they want to include a subject-matter expert,” says Zeiger. “The disconnect, as a fiduciary, is how an RIA knows if the life insurance producer they are choosing is the best fit and if the solutions that producer offers the shared client are the most suitable.”

Zeiger represents a small segment of life insurance producers who collect vast amounts of independent research (think “Morningstar” for life insurance) regarding not only life insurance products but the myriad of planning strategies for which the products are positioned. “It isn’t enough that I make a recommendation to clients solely based on product designs and intended performance. I want to use as much disinterested third-party research as I can to support a recommendation in any area – estate, wealth transfer, compensation or business planning."

Zeiger points out that this is especially comforting to RIA referral sources. “Everyone sleeps better at night – me, the RIA and the client – when my recommendation is supported by more than just my say so. As consumers, we use independent Morningstar when we look at our investments, independent JD Power when we buy cars, independent Consumer Reports when we need a microwave, attorneys, CPAs, RIAS, consumers need independent LISG when evaluating life insurance”

Help is Here

The primary function of the consulting division of Life Insurance Strategies Group is to provide affluent individuals and their advisors with independent and unbiased assistance in understanding complex life insurance transactions. Since no products are sold and no commissions are earned, our team at LISG is often inserted into a life insurance sale in several ways.

About a third of the time, we are engaged directly by the affluent client to help them in the decision-making process or to vet a life insurance producer. Another third of the time, LISG is brought in by the client’s wealth management advisor or attorney to provide oversight. Finally, a third of the time, professional life insurance producers will refer us to their clients and say, “I want to work with this third-party to make sure my recommendation is a fit and that you are comfortable going forward.”

When LISG launched over three years ago, it was a bit of a gamble that a fee-based consulting model would be successful. It has been wildly so. Having been embraced by HNW clients, major law and wealth management firms and top life insurance producers, we are providing the life insurance industry an independent resource for what is coming: documenting how clients’ best interests are served.

[1] this is a trick question, side by side comparisons are forbidden by industry regulators.


Since its inception, Life Insurance Strategies Group has solely focused on the individual high net worth life insurance market. We do not sell products. This allows us to offer unbiased, pragmatic advice. Visit us at


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