NEW YORK (Reuters) - Getting financial advice on complicated insurance products is, well, complicated.
Most life insurance with investment options, long-term care insurance and annuity products come with a dizzying array of options and many pages of fine print, the merits of which are debatable for your bottom line. That makes solid, unconflicted advice necessary.
But since most of these policies are sold on commission or with other incentives in mind, that means the salespeople are not necessarily recommending options that are in your best interest. They could be thinking about earning a cruise instead.
The money at stake is staggering. An annuity, which you buy with a lump sum to get payouts as you age, can cost hundreds of thousands of dollars up front, generating thousands of dollars in fees.
The person selling you the policy might not even understand all the implications for your retirement.
"The complexity of some insurance products has outstripped the financial adviser's ability to give reasonable advice," says Glenn Daily (glenndaily.com/), a fee-only insurance consultant based in New York.
The first stop on the road to an annuity for many folks is when they talk about retirement to a financial adviser, from whom it is possible to get solid, unconflicted advice if you choose a fee-only certified financial planner. This kind of adviser, known as a fiduciary because he or she pledges to make decisions based on your best interests, can tell a client what kind of annuity to purchase and then recommend a trusted salesperson - who will likely earn some kind of commission on the sale.
Some CFPs work on a hybrid model, charging an hourly fee for their financial planning, but can also sell you insurance.
“I tell clients I can be your agent, on commission, and I won’t charge for that time. Or I can charge for the time, and work with another agent,” says Ellen Siegel, a financial planner with Legacy Wealth Management Inc. in Plantation, Florida.
Another option is to employ a fee-only insurance consultant like Daily, who will offer an independent view on the policy you are considering. Fees are based on the case, but can run about $300 an hour.
“The vast majority of the time, people wind up doing something different after consulting with me,” said Daily. “Sometimes it’s a minor tweak, but sometimes it’s a major difference – like not buy the policy.”
Trying to go it alone can be difficult because there is not a lot of independent research available for the average consumer, and policies from different companies are difficult to compare.
Some companies sell commission-free products directly to clients. Among them are Amica Mutual Insurance Company and TIAA, as well as Lincoln Financial Group, which offers a new fee-only annuity. But buyers should shop around, because the representative at one company will not have pricing to compare with any of the other companies’ products.
Even a broker may not have the widest selection available, says Patricia Born, a professor of insurance at Florida State University’s College of Business in Tallahassee, Florida.
Daily says the safest option to handle on your own is a single-premium immediate annuity, for which you pay a lump sum and then receive monthly payments. “You only have a few choices to make - it would not be that complicated to evaluate,” he said.
Still, it is a good idea to ask a salesperson about her commission structure and whether she has any additional compensation.
When you move up to more complicated policies, the analysis you need may only be available via subscription to professionals.
Barry Flagg is founder of Veralytic Research, which evaluates pricing and policy information on insurance.
“Even when you are buying car, you go to CarFax or something. That’s the only way I know whether you are getting a sales pitch or advice,” said Flagg.
One final way to determine whether you are getting good advice from a salesperson: the sniff test.
“Do they feel like they are being sincere? Do they take the time to explain the options to you?” Siegel asks. “Or do they feel like they are selling you a car?”
Editing by Lauren Young and Dan Grebler