Vol 5 No 5		June 2003

Katt & Company is a fee-only life insurance advising firm. We work with clients throughout the U.S. - primarily by phone, mail, email and telecopy. Typically, we assist clients buying life insurance and those who need existing policies reviewed and managed. We also assist clients with disability income and long term care insurance. The June 2002 Forbes magazine named Peter Katt as one of only four nationally recognized advisors, stating, "…advisers are well worth the money… These savants are working for no one but you…" For references please contact us.

This newsletter has been titled "Alerts, Tips and Information." This issue inaugurates a new title - "LIFE INSURANCE PERSPECTIVES." This change, of tectonic proportions, is due to the author losing patience with trying to decide if imparted information should be categorized as an Alert, a Tip, or as Information. In the future, all views will be "perspectives."

"Free" Agent Services can be Expensive

One mode of life insurance agent success is to ingratiate themselves with a client by handling rather mundane financial planning matters and gaining frequent contact with the client's attorney and CPA to extend these feelings of gratitude. These unpaid activities create feelings of entitlement by the agent, and obligation by the client and fiduciary advisors regarding the purchase of life insurance. The agent's growing attitude of entitlement can metastasize into a sense of possession or control. I cringe whenever hired into such a situation because eventually this agent will assert this sense of command over the client's insurance affairs causing the client and his advisors to make unpleasant choices.

I recently encountered such a situation. An agent's hyperactive role in tidying up various estate planning matters was accompanied by his recommending a complete change in the client's life insurance assets. As the commission check was about to be picked up the client asked his attorneys to find an independent advisor to offer a second opinion. From the moment I was hired the agent tried to define what I was supposed to do by telling me what the client would and would not consider as if the client was no longer an independent actor regarding his life insurance assets. If I had accepted these instructions my only function would have been to plan the agent's vacation in celebration of a $250,000 commission. Unfortunately for the agent, I am not in the habit of taking orders from them. The agent and I got along fine until he realized I wasn't going to rubber-stamp his recommendation and then his sense of control took over and he became considerably agitated. Hours after sending the agent a copy of my report (that supported half of his recommendation, but recommended diversification for the other half that included retaining one-third of the existing life insurance and a second new policy from another company) he fired off an email to me screaming that the client wouldn't take another insurance physical and would not be forced into it. Within an hour of my sending the client this email exchange word came that he would be happy to take another insurance physical. By the end of the day another email had arrived from the agent informing me that one aspect of my recommendations was absolutely UNACCEPTABLE (emphasis in the original) and then went on about his being entitled blah-blah-blah… The client and attorneys accepted my recommendations and were very good sports about all of this and didn't particularly hold it against the agent who ended up with a first year commission of around $125,000.

The larger point here is the problem for clients and their fiduciary advisors dealing with insurance agents who perform good services for which they receive no compensation but feel entitled to life insurance sales without questioning. Clients and their fiduciary advisors often hugely overpay for these services rendered by insurance agents for free.

"Trust Fiduciary This"

I was on the cusp of being hired by an attorney to review three life insurance policies in an irrevocable trust with a mega-corporate trustee. However, the Trustee, whose subsidiary brokerage firm had sold the policies in the first place resisted my involvement and insisted on having the brokerage firm do the review, which resulted in recommendations that the existing policies be replaced with new insurance policies. Because the Trust didn't allow for the easy replacement of trustees and the attorney didn't want to start a civil war with colleagues he has to work with he felt he had no choice but to accept the Trustee's ultimatum. I still haven't got my jaw realigned from having the attorney tell me this. Perhaps because I have a national practice with no need to play nice in any particular neighborhood, I fail to understand the extent to which local practitioners rationally need to go-along-to-get-along. I am interested in readers' opinions on this. Please indicate if I can include your comments, with attribution, on my Web site.