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“Hey! Watch who you’re calling an advisor!”

“What’s in a name? That which we call a rose | By any other name would smell as sweet.” –Romeo and Juliet

In this famous line, The Bard was allegedly making a statement about the quality of a thing being its defining characteristic, instead of merely the name we call it. However, a recent article by InsuranceNewsNet’s Linda Koco casts doubt upon this; what title you use (at least in the insurance industry) is extremely relevant. Is it just semantics? And even more importantly, what does it mean for you?

In recent years, there has been a slowly-growing awareness of the subtle differences between advisors, producers, brokers, etc. (and the list goes on).  However for compliance experts, the debate about professional titles has been raging for some time. Many may see this controversy as trivial, but make no mistake; when it comes to consumers who may be confused (or possibly misled) by a title, it’s serious business.

Koco helps draw a significant line in the sand between “insurance-only producers” (which encompasses many of us in the insurance industry), and “traditional” financial advisors. Per the article, insurance-only producers “…face significant regulatory risk by referring to themselves as a financial advisor, financial planner, [or] wealth manager…”. The sticking point is that traditional financial advisors have more extensive education, certifications, and expertise that enables them to offer financial advice (usually for a fee). Insurance-only producers usually do not possess the ability to offer such a variety of services, and generally operate on a commission-based compensation model.

For instance, the NAIC advertising model regulation says that, “No insurance producer may use terms such as ‘financial planner,’ ‘investment advisor,’ ‘financial consultant’ or ‘financial counseling’ in such a way as to imply that he or she is generally engaged in an advisory business in which compensation is unrelated to sales unless that actually is the case.”

However, the lines can become blurred in many cases, especially regarding insurance salespeople who offer other product alternatives, such as securities, or who are legitimate financial planners themselves. Perhaps most telling is the NAIC’s Unfair Trade Practices Model Act, which states that “…it is an unfair trade practice for an insurance producer to hold “himself or herself out, directly or indirectly, to the public as a ‘financial planner,’ ‘investment advisor,’ ‘consultant,’ ‘financial counselor,’ or any other specialist engaged in the business of giving financial planning or advice relating to investments, insurance, real estate, tax matters or trust and estate matters when such person is in fact engaged only in the sale of policies.” And to further muddy the waters, each state has specific requirements as to what a producer may call him or herself; what does this mean for producers licensed to sell products in multiple states?

Another bone of contention is the “standard of care” definition – financial advisors generally subscribe to the “fiduciary standard” of care, meaning that the advisor is sworn to put the client’s interests ahead of their own. Insurance-only producers generally only have to adhere to the “suitability standard” of care – making sure only that the sale is suitable for the client (i.e. does not cause financial harm). While this may seem like splitting hairs, the difference is substantial, and industry compliance watchdogs seem to agree.

With FINRA, NAIC, NAIFA, and individual state insurance departments all weighing in on the debate, you can reasonably assume that there will be no clear mandate on this issue soon. The nature of our industry itself is evolving, and as such, our terminology must evolve as well – so what’s the bottom line for our producers? Simple. Err on the side of caution – if you are an “insurance-only” producer, and your main business activity is selling insurance products, then stick to that when figuring out a title. If you offer additional registered financial planning services, or CPA services, or securities, etc., then feel free to incorporate those as well. As long as we are genuine and make it crystal clear to our clients about what depth and value we bring to the relationship, there is almost no way to go wrong.

Additional reading for the interested:




(The above post is strictly the opinion of the author, and in no way should be construed to represent the official position of Zenith Marketing Group, LLC.)

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