Compliance and clients' best interests: a lesson for the agesBlog added by Jim Katzaman on February 18, 2014
James Katzaman

Jim Katzaman

Glen Burnie, MD

Joined: February 10, 2014

I was talking with a fellow insurance agent recently, and he told me that one of his clients was disappointed because her fixed annuity gained only a few points in interest in 2013. She thought she could have done much better putting her money in a mutual fund. There are two other factors: She is in her 60s and plans to retire in two years.

Clients aren’t expected to understand compliance because they don’t hold or have to maintain insurance licenses. Agents, however, must keep compliance in the forefront of all their business. High-risk, high-return plans are most appropriate for young people with long investment horizons. Mature individuals staring at retirement should be guided toward a conservative investment that will protect their principal.

My agent friend had done the right thing when he set up that particular account. At the same time, he brought to mind my own indirect experience at the receiving end of an agent with, shall we say, different standards.

In the 1990s, after my father died and before I had an inkling about insurance, an agent set up my mother in a high-risk, high-reward mutual fund. My mom, in her late 70s, invested the $80,000 she received from the sale of our family home. Then the tech bubble burst. Her $80,000 quickly shrunk to little more than $40,000. By that time I was newly licensed and understood the principles of proper investments. I was also too late. My mom died in 2003 at age 81. She always wondered what happened to her money.

When you meet clients, keep their wishes in mind, but don’t lose sight of what you’re paid to do: Look after their best interests and comply with the guidelines you had to study and pass to get your license. You won’t really know the downside until, God forbid, it happens to you or your family.
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