October 18, 2017
Recently, a reader asked for my advice concerning some life insurance policies he was holding. I told him life insurance was beyond my competence and suggested he consult with a fee-only insurance consultant. He conveyed that view to his financial advisor who rejected it. The advisor said he had his own insurance consultant who would review the policies “for no fee.”
That seemed like a better deal to my reader. He asked why he should pay $350 an hour when he could get the policies reviewed without any charge?
Here’s what I told him.
Why would a complete stranger (the “free” insurance consultants) offer to perform a valuable, time-consuming service without charge? They must perceive an economic benefit in doing so.
The “free” consultants sell life insurance. It’s likely (but not certain) they would find an issue with the policies being reviewed. The solution? The “free” consultants would recommend cancelling those policies and selling replacement policies, thereby generating a fat commission for them.
It would be very difficult to tell if the recommendation of the “free” consultants was tinged by self-interest. Insurance is an incredibly complex product. Few consumers understand how these products work. Even fewer would be aware of the existence of lower cost (and lower commission) products that might be more suitable.
A fee-only insurance consultant will agree to act solely in your best interest. He does not sell any insurance product or benefit from any decision you make. His sole compensation is the fully transparent fee you pay him. A competent fee-only insurance consultant will discuss better alternatives if there are any.
Until I started working with a fee-only insurance consultant on my own insurance issues, I wasn’t aware that some insurance policies don't pay any commission or that there was a way to reduce the commission in other policies. The amount I saved dwarfed the fees I paid.
You aren’t going to get objective advice from someone who has a conflict of interest. This basic principle applies not just to insurance but also to advice dispensed by stock brokers.
Keep this in mind the next time someone offers to give you “free” advice.
The resource page of Glenn S. Daily, a fee-only insurance consultant, provides valuable links to fee-only insurance consultants, fee-only financial planners, and other helpful resources.
Not getting Dan's weekly newsletter? You can sign up right here.
We use SEO and other marketing strategies to create a steady flow of leads for financial advisors and estate planning attorneys
dansolin@ebadvisormarketing.com