Tuesday, July 10, 2007

Life companies would like some retirees to help sell to other retirees -- but what about the ethics?


I spent the last twelve years of my information technology career, before I “retired” at the end of 2001, were spent in a life insurance company, acquired twice. In the spring of 2005, I was approached by a different major life insurance company about becoming a life insurance agent in my area.

On a Saturday morning I took a multiple choice personality test, which I passed (I could tell what answers they wanted), and then started the first of four sessions. The general plan would have been to obtain the life insurance license quickly and be able to sell life policies. The longer term plan was to become a financial planner. In retrospect, it does appear that this particular company intended that the agent take the fill three or four year course to become a Certified Financial Planner or Chartered Financial Analyst. The compensation would have been by commissions, but for three years was to include a substantial “training bonus.” This compensation appeared to constitute a bridge until the time one could be fully certified. In life insurance sales, over time a substantial income could come from renewal commissions. Another concept is cross-selling (as a result of corporate mergers and consolidation of insurance companies as financial services companies) to the same customer of different financial products, and that involves the expertise and licensure issue discussed below.

The job would have required getting a ‘fast start” and an exercise to generate 200 or more leads. I think this would involve trolling existing social networking contacts, which I do not have to an appropriate level for this kind of exercise; I get emails all the time offering insurance sales leads as a leftover from this episode and I can see how lists for "prospecting" (and maybe "cold calling") are "traded". In general, new agents often have to hustle to find customers. (When I was working and saw the sales literature, one of the techniques expected of agents in the early 90s was to set up weekend kiosks at shopping malls to attract and collar prospects.) One issue that came up in the third interview, and which led me to stop the process, was that no outside income was allowed (except for an existing pension from a previous job). The company claimed that this was a requirement of Sarbanes-Oxley if they paid a training bonus. Obviously, then, I could not have continued blogging for ad revenue, and probably the public exposure from my domains and blogs would have been perceived as interfering with the public reputation that I would need as an agent. But I question if they could legally prevent me from earning money from selling my own separate intellectual property (novels or screenplays) having nothing to do with the job, because I own the copyright to anything I produce myself with my own resources. (Comments anyone?)

Indeed, in many communities, the life insurance agent is somewhat of a social lynchpin, particularly in smaller communities, as in the Gulf area after the hurricanes. In this case, it appeared that the company wanted to expand in rural and exurban areas.

In 2003, while still in Minnesota, I had been approached by another company for a narrower idea: getting people with whole life policies to switch to term. This was said to be a $40 trillion treasure chest. In fact, I had first gotten a call from this company on Sept. 13, 2001, a curious harbinger of the economic dislocations to come after Sept. 11.

But all of these ideas, to perspective employers, seemed motivated by the idea of using the business background that I had gained in twelve years of working as an individual contributor in a life insurance company. In most cases, especially with younger applicants, they have to train their sales people with all of the business knowledge.

For me, the practical question is, with all that business and technical knowledge, why wouldn’t I be interested in trying to sell it? That’s not an idle question. In 2003, I was still drawing some unemployment (in Minnesota it was generous and flexible) and I could have been pressured to work in direct sales.

Now, as a matter of personal temperament, I do not like to manipulate people, to buy things or for anything else. I am much happier with analyzing and researching something and presenting it as truth. But one can see that it is natural for corporate America to believe that sales is a natural progression in a career, particularly when so much manufacturing and productive infrastructure has been offshored.

The New York Times, on p A1 on Sunday July 8, 2007, Charles Duhigg has an article, “For Elderly Investors, Instant Experts Abound.” Here is the link (will require NY Times registration and perhaps purchase). Several life companies (none of them among the two mentioned earlier her) are mentioned as promoting quick-and-dirty certifications in elder-oriented financial advice, including “Certified Senior Adviser,” “Certified Retirement Financial Adviser”, “Registered Financial Gerontologist”, “Certified Retirement Counselor” The courses were usually a few days for a few thousand dollars, and certification was obtained by passing very easy and common-sense multiple choice tests. It does not appear that the life company that contacted me in 2005 was pushing these short-circuited pseudo-financial-planner titles.

What seems galling is that retirees are believing that they can become public advocates for other seniors with such superficial strategies. Barbara Ehrenreich had warned about such corporate rah-rah mentations in her book “Bait and Switch.” One practice criticized in the article was the selling of deferred annuities to other seniors. This has been seen as deceptive. Perhaps a deferred annuity makes sense to a senior who is still working, in good health and with a long enough life expectancy to collect all of the premium back with interest. Sometimes "agents" have been caught in the middle, and become liable for possible civil accusations of fraud, as their companies deny wrongdoing. As a whole, the life insurance industry has strict rules against practices like twisting and churning.

A huge area of potential elder-oriented financial advice would deal with long term care insurance. This is a complicated subject, as a recent USA Today series demonstrates. Long term care could become more critical if states start enforcing filial responsibility laws, beyond what they must do now because of increased federal look-back rules regarding asset spend-down.

A related story appears in the Monday July 9, 2007 The Washington Times, “Morally sound stocks sought: investors can specify religion,” by Julia Duin. One investment advisor company mentioned was Stewardship Partners. Companies could be excluded if they supported stem-cell research and gay rights. A more obvious application of this concept ought to be green-friendly companies.

Update: May 28, 2008

The "no outside income rule" seems to be related to the conflicts that occur in some insurance operations where some people act as brokers (paid by clients) and still might earn contingent commissions. There is a paper in "Insurance Journal" Nov. 16, 2004, "Independent Insurance Agents Defend Themselves at Senate Hearing over Broker Compensation," link here.

The US Government Printing text of the Sarbannes-Oxley law is here. The closest match to a provision in the laws may occur in Title II on p 28. In general, an insurance company, when providing various kinds of contingent or draw-like compensation to new agents, might have difficulty making sure that the agent did not break rules regarding acting as a broker and "agent" at the same time if it did not have a "no moonlighting" policy. In theory, even an income-earning blog could be perceived as giving "advice", at least indirectly, to clients who knew the agent.

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