Add-on insurance, modus operandi or sales tactic?

Add-on insurance, modus operandi or sales tactic?

Add-on insurance, modus operandi or sales tactic?

Financial advisors are butting heads over whether selling insurance on top of advice is a legitimate modus operandi or just a way to a make an extra buck.

Those against the practice consider it a conflict of interest. They believe advisors licensed to sell insurance are profit-driven, impeding their ability to consider their clients’ needs first.  

“It’s a huge conflict of interest,” says Mike Bayer, a fee-only financial planner at Strategic Analysis Capital Management Inc. in Mississauga. “If they (advisors) were looking at a client’s best interests, they wouldn’t be selling commission-based financial products. If they can’t see that far then their objectivity is out the window. It’s hard to understand something if your salary depends upon it.”

Bayer believes that when faced with an array of financial products with varying commission rates, alongside offering clients an additional guarantee (i.e. insurance), most advisors will sell what generates the most profit.

“You want to think that people are going to do the right thing, but people are self-interested. They are going to sell what makes them the right amount of money,” says Bayer. “They are not what I would consider professional financial advisors.”

Marta Stiteler, an independent financial planner out of Hamilton, who is licensed to sell financial products and insurance, disagrees, arguing that creating a financial plan with insurance only makes sense.

“Risk management is a huge part of being able to help clients find a solution. Insurance is just a strategy within that solution,” she explains. “...As long as you are doing it correctly, finding the insurance they (clients) need, and are disclosing that you are making commissions on it.”

Stiteler believes it would be irresponsible of her not to recommend insurance, particularly with vulnerable clients such as those with debt or economic uncertainty. She says there is no reason advisors like herself should not be paid for this added advice.

“If I have a young family with children and they have no insurance and the wife hasn’t worked in three years and I didn’t offer insurance, I would be opening myself up for a lawsuit,” she says. “What kind of financial planner am I?”

Though Bayer is not anti-insurance and agrees that some people need it, he is appalled by the amount of money paid out on certain contracts, whole-life and extended life contracts in particular, he notes, and the industry’s business practices overall.

“Insurance companies can do whatever they want, however they want, whenever they want. They are great for people who are selling them,” he says. “It would be nice if we had more companies that were owned by the policy holders and if it wasn’t just a huge drive to maximize revenue at whatever the cost.”

Stiteler and Bayer agree on one thing.  

“(Insurance) is not for everyone. Some people have so much money they don’t need it,” she admits. “It has to be right for the client.”