I read a great article this weekend that appeared in the Your Money section of The New York Times. The article was titled “The Perils of Finding a Conflict-Free Financial Adviser” and was written by Tara Siegel Bernard. It is pretty obvious, by the content of the article, that Bernard knows advisers and the tricks of the trade.
Her article starts by describing how difficult it is to identify advisers who are required to put investor interests ahead of their own. They are out there, but they are hard to find. These advisers are registered as Investment Advisor Representatives (IARs), which make them financial fiduciaries who are held to the highest ethical standards in the financial service industry. Perhaps one out of five advisers are IARs. Continue reading →
I say “absolutely not” if the agent’s primary business is selling auto, home, or health insurance. It is a different story if the agent’s main business is selling variable annuities and other investment products inside insurance contracts. Even then you should be questioning the agent’s experience, registrations, and certifications.
You might be asking, “Why do auto insurance agents sell investment products?”
Because they work for greedy insurance companies who are run by executives who put their companies need for profit way ahead of their customers’ need for competent financial advice.
Visualize this! A group of executives are sitting around a conference table one day and one of them says “Our biggest asset is our three million customers. What else can we sell them that will generate new revenue streams for the company? This new business will have great profit margins because we already have the distribution system in place?”
The executives all nod their heads in agreement. New revenue streams mean increased profits and increased profits mean bigger bonuses. As usual, customers are just a means to an end.
Don’t kid yourself! This is how all of the big casualty insurance companies got into the financial services business. They decided to leverage their customer relationships by cross-selling additional products. Apparently mutual fund products and car insurance products have a lot in common.
You may like your car insurance agent, but that does not mean he is qualified to recommend investment products – in particular for assets you are accumulating for retirement.