[Editor's Note: Today's guest post is actually a combination of two submitted guest posts that were both very good so I wanted to run both of them. However, they were so similar and we had so many other great guest posts to run this quarter, that I decided to combine them. That makes today's post about twice as long as usual, but I think if you read through them, you will find the experience worthwhile in understanding the mindset of many professionals in the financial services industry.]
By Donovan J. Sanchez, ChFC®, CSLP®, CLU®, Guest Writer
Confessions of an Ex-Northwestern Mutual “Financial Advisor”
I graduated from Brigham Young University with a degree in English Teaching and minors in Spanish and Business Management. After graduation, my family and I accepted an opportunity with Teach for America and moved to Dallas, Texas, where I worked as a high school teacher serving at-risk youth.
I was naive about how expensive life is and soon found there were goals and life experiences that would be out of reach with my career choice. I was the sole breadwinner for our growing family and as I wrestled with financial concerns, I came across Dave Ramsey. I was intrigued by his no-nonsense approach to financial planning, the simplicity of his steps, and the almost religious intensity he uses to get listeners pumped up to take responsibility for their lives. I had one credit left on a canceled Audible account and I decided to purchase The Total Money Makeover.
Prior to reading Ramsey’s book, I knew basically nothing about finance, but soon my wife and I were working our way through Ramsey’s “Baby Steps.” Dave recommends that you work with a financial advisor, so we used his “Endorsed Local Provider” search to find someone we could trust. Our advisor helped us get life insurance and we opened Roth IRAs. Meeting with him was like storytime with grandpa—he was just a really nice guy.
In the meantime, I had become disenchanted with teaching and after a few opportunities that didn’t work out, my wife suggested that I reach out to our financial advisor to see if I might like his job. When I called him, he told me that I would love his line of work, and gave me a few companies to interview with.
How I Became a Northwestern Mutual Financial Advisor
After interviewing with a few firms, I decided to join Northwestern Mutual. Why? Because I liked the people there. It didn’t have anything to do with the planning philosophy or how they conducted business because . . . I didn’t know any better. I wasn’t financially sophisticated enough to know much about what I was getting into.
Misgivings About Whole Life Insurance
Something I did know, however, was that Northwestern Mutual was a BIG believer in whole life insurance (a.k.a. “permanent” life insurance). Under the tutelage of Dave Ramsey, I had some serious misgivings about whole life, but I also recognized my lack of financial knowledge in general, and so decided to suspend disbelief and see if I could learn something from Northwestern Mutual. Perhaps the bad things I had heard about whole life insurance weren’t true after all.
The Northwestern Mutual Interview Process
As part of the interview process, I was required to call people that I knew, tell them about the opportunity I was exploring, and see if they would be willing to provide me with referrals. In doing so, I called one of our doctor friends that we knew through church. He kindly accepted my request to meet with him.
My Training with Northwestern Mutual
For my introductory training (which lasted about 3-weeks) I was told to gather a list of 200 individuals to call for scheduling appointments. We called the people on our list and scheduled as many meetings as we could with the ultimate goal of hitting “Pacesetter 40” (selling 40 insurance policies in the first six months in business).
Because many of my friends were resident physicians, I called on them to meet with me and my manager. Many of these friends purchased the company’s term life and disability insurance products. I was taught that Northwestern Mutual’s products were the best in the business.
My career as a “financial advisor” was off to a good start.
The White Coat Investor Blog
I didn’t forget my doctor friend who told me that he was following the White Coat Investor blog. In fact, because I had decided that serving medical professionals would be a good niche, I began following the blog myself. I purchased Dr. Dahle’s book and read it and referred to it often.
Initially, I felt irritated at Dr. Dahle’s antagonism of financial advisors like me. I felt belittled and degraded by the things that he wrote, in particular about Northwestern Mutual advisors (apparently stemming from an experience he had with a friend who sold him a whole life insurance policy). I felt defensive and wanted to justify what I was doing, but I also worried that perhaps I would become the “friend” that sold Dr. Dahle something that he didn’t actually want or need.
My Whole Life Insurance Sales Training
As time passed I became discouraged that so much of my training was focused on sales, insurance, and on using the right language to get people to buy our products. It seemed that we were constantly talking about insurance, but not as much about creating good plans for people.
Leadership in my area invited young advisors to join a regular call to learn how to be successful in the business and achieve a coveted company award. I attended many of these calls and learned the special language our local leader used when he was a young advisor to sell large amounts of whole life insurance. The training focused on saying the right things to trigger interest from the consumer, while waiting until the very end to reveal that the product was actually whole life insurance. In other trainings, I was taught to avoid saying “whole life insurance” and say “permanent life insurance” because it didn’t have the same stigma that “whole life insurance” did.
Because my career identity was tied up with the company, I wanted to believe that what I was doing was a good thing. So I paid for training from one of Northwestern Mutual’s best producers, hoping he could convince me of the value of permanent life insurance.
Unsurprisingly, what I actually purchased was more sales language training.
Making a Living: Whole Life Sales Quotas
Being a Northwestern Mutual financial advisor is no walk in the park. Most of the people who join the company end up leaving in a relatively short period of time. It frustrated me that managers recruited so heavily, but when I looked around there were very few seasoned advisors.
Because Northwestern Mutual financial advisors can sell non-Northwestern Mutual insurance products, we often used this as a way to persuade clients as to why we were recommending Northwestern Mutual in the first place. If we can offer everything, we reasoned, but choose to recommend Northwestern Mutual, that means that we are offering the best product out there. But I never heard advisors mention that we had high sales quotas for Northwestern Mutual products. In fact, if we didn’t sell enough Northwestern Mutual products we could be fined. One friend has been fined for years for not hitting the required thresholds.
As I was coming up on a year and a half with the company, I was no longer convinced that whole life insurance was a product worth selling to most people. In a few cases where a guaranteed death benefit is desirable, it’s a great solution. However, I found that advisors often wanted to tout secondary features instead of its true nature as an insurance product.
It became uncomfortable to sit across from clients, knowing that the right thing for them to do was to stay the course and not make any purchases at that time. But if they didn’t buy something, I didn’t get paid. And that was hard to swallow.
It’s no secret that financial advisors who are paid on commissions have strong incentives to sell expensive products and come up with creative reasons why they make sense in your life. There’s some serious mental maneuvering that happens to justify the sale. I once heard an advisor say that it was better to sell a more expensive product to a client than a cheaper one because the most important thing for them (the client) was that you (the advisor) were still in business next year to continue to work with them.
That doesn’t sound like putting the client’s best interests first.
Is Northwestern Mutual a Good Company? The Business Is Made Up of Good People.
This article isn’t intended to vilify Northwestern Mutual financial advisors or any other advisor working with a similar company. There are certainly bad actors, as there are in any field, but most of those I interacted with were good people. I still cherish many of the relationships that I established while working at Northwestern Mutual. However, I do hope that this article helps you see how environments shape behavior.
People will do what it takes to feed their families and provide a great life for themselves and those that they love. Also, many advisors actually do believe that the expensive whole life policies that they sell are the best thing for their clients. I obviously don’t share this belief.
Coming to My Senses
I was taught that Northwestern Mutual’s products and planning philosophy were the best. My personal conclusions—many of them formed or inspired by White Coat Investor articles—suggest that there are better ways to plan and do business. I also learned that the way to determine which product is “best” for a physician is to analyze their unique situation and then make a selection from all available companies.
I knew that my time at Northwestern Mutual was coming to a close, and I eventually joined a fee-only firm that charges clients based on a percentage of assets under management. While an improvement to the commission compensation model, I soon found that charging based on assets under management creates a new set of problems.
This realization led me to form a financial planning firm based on a flat fee only compensation model.
A Story Worth Repeating
For avid readers of this blog, maybe this feels like old news. The White Coat Investor has been preaching from the mountaintop about the realities of whole life, commissions, and crafty advisors for years already. Perhaps this isn’t a story worth repeating anymore.
Sadly, I know that many young doctors continue to engage in financial planning relationships with the wrong type of advisor. I expect that there is still a long, hard fight left to be fought. But it’s not just to protect young doctors. It’s also about helping direct the next generation of financial advisors to environments where they can become the financial professionals that they strive to be, and avoid those environments that will exhaust, manipulate, and waste their talents.
These are my opinions, and this is my story.
By Anonymous Finance Profressional, Guest Writer
What Does Northwestern Mutual Do? Inside the Mind of an Insurance Company Selling Whole Life and Annuities
I work for a finance company whose main products are different types of annuities and whole life insurance products. Our company has actuaries, marketers, and salespeople. We do not have finance professionals.
Our business creates these financial products that we then market and sell to financial professionals, who in turn try to sell to their clients. Even in the annuity and whole life space, our products are very complex in how they work. I'm someone who works on the inside, and yet knows enough about personal finance that I’d never buy one of our products—even with a set percentage employee discount!
Whole Life ‘Scam'? Gulf Dividing DIYers and the Insurance Industry.
I thought your readers might appreciate the vast world of differences between how DIY investors think the finance and insurance industry works and what people in this industry at least tell themselves they are doing. The average DIY believes whole life insurance and annuities are scam products that almost only exist to fill the pockets of financial professionals. The average industry insider believes whole life insurance and annuities help guarantee income in retirement.
Helping the Average Joe?
I think it’s important to remind your readers that just about any company out there in a capitalistic society has one overall objective over anything else: make money/be profitable. Companies work very hard to create a culture around their brand and products. In order to create a positive culture, you need to create a theme that what you do really does help the average Joe.
If a human thinks they’re being helpful to others, they are more likely to value what they do. So when I see financial professionals come on the blog and defend annuities or whole life insurance, they really do believe it! They are often experienced, certified and trained to sell these products, and of course, they think they’re a good person — so they really do think they are helping.
Financial professionals think DIYers have no idea what they are doing. They believe the knowledge and education DIYers get by themselves online is inferior to what financial professionals have to go through — even if in reality it’s just a few formal hours of learning how to sell a product. Because it’s “formal” that makes it more legitimate, in their view.
“Doing Good” by Selling Whole Life Insurance to Financially Illiterate People
My company has a slogan that centers around the idea of helping people prepare for retirement with a guarantee of income. We make a promise of a guarantee of lifetime income, and it is a promise that is kept if you do everything that the contract says you need to do. Think about that. That’s a powerful statement to make—a guarantee—to people who are otherwise financially illiterate (which are most people).
We convince our own employees that we’re helping people who otherwise would have no clue what they are doing. The sales training, which I’ve witnessed, really ingrains this message. It also claims our products are complex. Our products are complex and so the intensive training just makes an individual all the more invested in getting others to understand the complexities. They really feel they are doing good by helping even a financial professional understand our products and how the products can “help” their clients.
Measuring Success by Premiums
As I’m in marketing, I am asked how marketing contributed to the business. And do you know what someone means when they ask that? They really mean “how much additional policy premium did you bring into the business that we wouldn’t have had if there hadn’t been a marketing campaign?” It’s a common term in business called ROI-return on investment. Never have I ever been asked “How many people did you make promises of lifetime income to?” or “How many people’s lives did we improve today?” Premium, premium, premium. It is the only outcome that measures success.
Research and Development
As any good business does, we do a lot of research and development. We have a key understanding of the market. More and more people are aware of their RMD tax bomb, and so we make products that play into this fear to get them to move their money into other areas that might protect them from taxes, while yes, glossing over the fee structure.
A recent survey we did found that 35% of people are worried that “RMDs will throw them into a higher tax bracket.” With the knowledge we have, and the wording of the question, we will now go create products and messages around those products that will communicate how our products will help them from getting hit with a huge tax bill because RMDs forced them into a higher marginal bracket.
Wining and Dining the “Customer”
While our immediate customer is financial planners, we know that our products are meant mostly for rich people ($1m+ in assets not including a house) who are between 50-70 years old. We have relationships with financial planners, and some, in turn, share other customer data with us. We wine and dine and talk to the financial planners who provide us the most business at least weekly.
Marketing reaches out with trinkets/items marking their birthday or anniversary of the day they first sold a product of ours. We have a separate list of financial planners who have done at least a certain amount of business with us in the past year, and these planners get extra attention from us (think like if you are Vanguard Voyager select client or Delta Premium status member). We also keep track of planners who have done business with us in the past but not in the past year or half year, and set up marketing campaigns centered around a message of trying to win them back.
Marketing Spin Zone
Whenever we think annuities are getting a bad rap in the media (and we’re well aware of the reputation that is out there), I find it very interesting that the language I hear at our company is that what we need to do to fix this is to do a better job at “informing” or “educating” people on what annuities really are. That alone should tell you that our starting point for how to think about these products is nowhere near in the same universe that DIYers think about these products.
My company thinks we need to reshift how our products are talked about; they are NOT an alternative to the stock market. Instead, they are an alternative to fixed income. So the readers of this blog might ask how in the world they are possibly a good alternative to fixed income like a high-yield savings account at Ally? Well, my personal answer is I don’t know, I’d never buy them either!
Keep in mind that most of the general population in the United States is not well versed in financial planning — much less an even more complex topic such as annuities and whole life insurance! The next time you go into a store like Target or Costco, do you think their product placement is random? It’s not. Do you think it’s a coincidence that most people (though maybe not most who read this blog) buy more things at the store than they intended? The marketing in our society fundamentally plays with the brain to make us think we need something.
Protecting People from Themselves
Seeing Whole Life from the Industry's Point of View
Finally, you know how doctors can get irritated when a patient looks up your diagnosis (or self-diagnoses prior to a visit) on WebMD and based on that information, is absolutely convinced you’re wrong? Think about it this way….people in the financial space don’t like DIYers saying annuities and whole life are bad products or are products that basically steal money from people, and they feel DIYers are in no way qualified to make such a determination because they never went through the “sales” training they went through. I’m not at all saying they are right….I’m just telling you their point of view.
One reason it’s so hard to get the message out there about how terrible these products are is that you’re up against a massive amount of financial muscle and people in this community who have a completely different set of beliefs than you when it comes to these products. To be sure, keep speaking out against these products, but hopefully, this post has given some insight on how uphill a battle it is.
So why do I work here? Well, I need a job. I’ve only been in this industry for a few years, and my career before this latest gig was for other non-finance corporations and even in the non-profit sector. In fact, only a fourth of my career so far has been in finance and insurance. I do not have any conflicts of interest because I’m not promoting our products in any way. In fact, I’m telling you I don’t have any.
But I find it interesting to get others’ perspectives, and this post will no doubt infuriate some but I hope readers can read this eyes wide open and just realize the financial services industry does not think itself to be a scam. Most people working in it do not think they are scammers either. And we all know—those in finance and many at the WCI blog and forum—that financial literacy is lacking in this country. There are many different ways to address that illiteracy, and in a capitalistic society, the finance and insurance industry has found a profitable way to tackle a need that people want to address in order to fulfill a more stable, more secure and guaranteed, retirement.
What do you think? Do any of the “revelations” in this post surprise you? Why do you think so many doctors end up buying insurance products they don't need? Comment below!
[Editor's Note: The first half was written by Donovan J. Sanchez, ChFC®, CSLP®, CLU®, an ex-Northwestern Mutual financial advisor. Donovan now runs his own fee-only financial planning company at SkyviewPlanning.com. The second half is written anonymously. These articles were submitted and approved according to our Guest Post Policy. We have no financial relationship with either author, their current firms, or their past firms.]
This post is refreshing. It is nice to see people who were honest enough to realize what was going on.
There are two facts in here that are pure gold (1) those who sell products have incentive to sell first and to provide financial advice second, and (2) selling products is a giant conflict of interest when you are supposed to be giving financial advice.
This is exactly the reason I don’t have personal disability insurance to this day. Someone was more interested in making a commission off of me (because they didn’t know better) than they were “knowing their stuff” and telling me to get a guaranteed issue policy when I got to residency.
Thanks for being open and honest!
TPP
Thanks, TPP!
I agree with you–it seems to me that if one is to be called an “advisor,” there should be a certain amount of independence to the professional opinion they offer. When advisors have product sales quotas, this obviously changes things dramatically . . . and not for the better, in my opinion.
I hope that readers will find my experience informative.
Donovan
Thanks for both of you sharing the insider views of company tactics pushing to sell a particular product, often not in the best interest of the client.
It sort of lets us look under the hood and sort of confirm what most readers of WCI felt all along, that it is hard to have a compensation model that is based on commission as you are then more inclined to just push the product for volume rather than having a product sold that truly benefits the customer.
Having people in the company sell you training to find trigger words/sales speech shows that most of this is designed to get a Pavlovian type reaction. If the product is truly great it should sell itself rather than require the use of slick messaging.
You know I’ve kind of thought the same but then I keep running into docs who don’t buy term life insurance when it is obviously needed. I think the evidence suggests that at least some people do have to be “sold” to do the right thing.
Thanks, XRAYVSN.
You’re spot on that the commission compensation model creates incentives that often create a conflict between the “advisor” and the client.
One of the more troubling revelations of my experience were the high quotas that we were required to meet. If we didn’t do so, we could be fined, or even lose our job. In this light, it seems more clear why many “advisors” find creative reasons to justify the sale of expensive products to people. If they don’t do so, their livelihood is in jeopardy.
Donovan
Thank you Donavan and anonymous for sharing the inner workings of financial advisors at NWM who have to sell these products and the motivation to do so.
I am on the investment committee for my group and we are looking into an advisor for the 401k who is currently an advisor for NWM. My concern is that he will try and drum up business from some of the docs for whole life insurance and/or put us in some higher fees either for 401k admin or mutual funds.
Any thoughts/recommendations on questions to ask?
Why not just forward this article to the other members of the committee? That ought to do the trick.
I just might do that.
When looking for a 401(k) advisor, or any for that matter, trust your gut. Moreover, just like when comparing any project/service, get 3 quotes. Usually, a trustworthy Advisor will be transparent about their fees and how that correlates w/ others’.
Great post!
It is refreshing that there are people with a conscience out there.
Comparing the DIY investor to a Web MD “doctor” is something I have thought about. If I repeatedly went to an advisor and did not take their advice and told them they were just a shill to the insurance companies and then sued them when I had an issue that their advice could have prevented it would be similar to the Statin “nonbeliever” who has a stroke. Replace insurance company with pharmaceutical and you have it.
The other part about buying the products you sell is interesting. I once asked for a different car salesman because he did not drive the brand of car he was selling.
If they took more care to ensure that those who purchase can afford the product for the long haul- spent as much time collecting annual premiums down the road as getting the first commission- it would improve their rep. Maybe alter commission so more paid off long term than immediate? Doesn’t work in a system where there’s as much turnover as described though.
The large underlying problem is regulations allowing people to call themselves fiduciaries or agents of people when their income is based upon selling a product (or raising AUM).
This isn’t just insurance agents. Real estate is another field where this is a huge issue.
Bottom line imho is all insurance agents brokers and realtors should just have people sign a plain form that says their compensation is dependent on what you buy. So everyone is CLEAR about the conflict fiduciary or not.
I love your thinking, Dave.
And I agree that one of the main issues is that the consumer often isn’t clear on how the advisor is getting compensated. For many of those who read this blog, it will seem silly not to get compensation details up front.
For those who aren’t well-acquainted with the financial services world, however, I believe that they often don’t know what questions to ask in the first place.
So, as Dave points out, I think a system (such as signing a plain form detailing the compensation arrangement) could go a long way to consumers understanding the type of relationship they are engaging in.
Donovan
Couldn’t agree more. The realtor for my first house assured me that the buyer was paying their commission and she was “free.” I blindly accepted that. Now I realize that 3% buyer’s agent fee is built into the price of the house (and I’ve saved substantial sums of money on my subsequent house purchases).
If someone wants a “guarantee” or these products then I suppose that’s up to them. But they should be able to fairly readily understand the fees/costs before doing so.
Yup, the seller doesn’t care whether it goes to you or your realtor. Just like your employer, it’s all just money whether it pays for salary or benefits.
Very thought provoking.
I think the most surprising part is just how unqualified someone can be when obtaining one of these jobs. Maybe the education/training part was glossed over, and as an MD 8 years of training is normal to my mind. But it seems like the first writer was a teacher who decided to change course and just directly applied for a job? Without getting a CFP or a similar degree certification first? (Or was that just omitted?)
If so it explains a lot of the conversations I’ve had with representatives of certain companies.
The WebMD point is one I’ve thought about myself before. I think the difference lies in the high barrier to entry for medical school, the qualifications to enter, and the rigor and training itself. But on the surface it seems analogous at first.
Thanks to both writers for shedding some light on what it’s like on the inside.
That’s pretty much the way it works unfortunately.
The low-barrier to entry is somewhat baffling, S.
I’m certainly no advocate for the lack of comprehensive training and education many of us received when we entered financial services. Imagine going to a surgeon for an operation, or to an attorney to argue your case before a judge, and they only had a peripheral understanding of their trade. Sound crazy? In the financial services industry it happens every day.
So while I won’t seek to justify how I entered the industry, I’m very grateful to have found it. Financial planning and investment management is fascinating, isn’t it?
But your point is well made. I think in time financial professionals can eventually get to the same level of professionalism as doctors, accountants, and attorneys. Higher standards for training and education BEFORE practicing will go a long way to making that a reality.
Best,
Donovan
Carl Richards calls it the Secret Society of Real Financial Planners.
I can relate to these submissions. I once “advised” clients to buy annuities. Based on my training I genuinely thought it was best. Once I started educating myself outside of the insurance company wholesalers I realized it was mostly crap. There is a hard to solve problem though. Financial advice/planning is much needed , but if you do it the right way, similar to the former NWM guy and go flat fee, it becomes really hard to make a living. Especially for young guys in the business. Financial firms complain all the time about how much “gray hair” is in the industry. How do we adequately educate young advisors, but also pay them well enough on a flat fee to attract smart talented people?
Just a plug for Donovan. I am one of his doctor friends that has been around through many of his transitions. I was with him when he was at Northwestern Mutual (before you shame me, yes I was a reader of WCI and have read of the evils, yes I also had an separate independent advisor run quotes and ended up going with Donovan mainly because term and disability were cheaper surprisingly and I wanted to work with Donovan). Even at Northwestern Mutual he wasn’t afraid to tell me what wasn’t worth my money, even though he had quotas. He is always trying to expand his knowledge in the world of finances to help his clients from loan repayment to tax law. He is an actual financial advisor with knowledge and integrity who has a good business model with reasonable rates. I would not hesitate to recommend anyone to his company at SkyviewPlanning.com. If you are looking for advice give him a shot and I doubt you will regret it.
Very surprised the term life was cheaper. You’re the first doc who ever told me they had that experience.
Yeah, a couple months ago I got new quotes to see if anything was cheaper. Northwestern still had cheaper term for me. My wife got cheaper term from someone else and I found cheaper disability with a better definition from a different company.
Your wife’s story is what I usually hear. Not sure why you’re unique but hey, take what you can get.
I am at least a decade out of date, so maybe things have changed, but I concur with WCI – historically, the big mutual insurers (Northwestern, MassMutual, etc) were not competitive on Term Life policies. Not surprising since they were not in business to sell Term Life, as outlined in the article. Going way back, the really large companies, like MetLife, had the best value in Term.
Ah, but Metropolitan Life was a mutual insurance company until April 5th of 2000. Prudential, John Hancock, and MONY demutualized as well in the early 2000s.
(One could argue the that they’d been acting on behalf of their executives and salesmen instead of acting for the policyholders as a true mutual insurance company for a long time prior to demutualization. )
The reality is that all fields are blinded by some layer of profit motive. Medicine is hardly immune from this phenomenon. I find it disingenuous to imply that because wine and dine behavior in the medical industry is restricted it is less nefarious. Likewise, the existence of fee-for-service encourages physicians to intervene on the edge cases. Even the research component of medicine requires subjects who can be given unnecessary testing to increase sample sizes. All things I’ve seen in medicine that aren’t very far off from selling “scam” financial products.
At the end of the day people will rationalize away their misdeeds if the action lines their pocket. Medicine isn’t a bastion of morality in this regard.
Very good post/posts. My favorite line of the post: “So why do I work here? Well, I need a job.” That about sums it up. We all have ourselves to take care of first. Don’t believe me? Let me take away your food and shelter for you and your family and we will find out what you would be willing to do to “put bread on the table”. If working at NW mutual was the only way I could pay the bills, pretty sure I would be working there too.
On a related but somewhat differing perspective, annuities are repeatedly mentioned in the post. I don’t see all annuities the same. Some of this has to do with taxes, but most of it has to do with “sequence of returns”. For example, if I were going to retire this year I would give an annuity a serious look for part of my portfolio. We have basically been in a 10 bull run in the market (not exactly, but close enough). No telling when it will take a turn for the worse, but history tells us it eventually will. Not having to worry that in the first 1-4 years of my retirement, 60-90% of my portfolio might take a 30-40% hit is something I might pay a little extra for….especially if I have a very large portfolio. I know WCI has done posts in the past on annuities so some of this has been covered in the past posts. But just a gentle reminder that lumping every product and every person desiring a product into the same category probably doesn’t work well either. I have no plans to retire any time soon, but there are plenty of people who are considering a plan like this right now.
More on annuities here:
https://www.whitecoatinvestor.com/spia-the-good-annuity/
https://www.whitecoatinvestor.com/the-truth-about-buying-annuities-a-review/
Thanks for the links. It’s sad that I remember when you wrote these posts. Seems like yesterday but it was actually 7 years ago! 7 years ago I didn’t care about annuities and only skimmed the posts. 7 years later, and although I am hopefully still a ways from considering one, the information is much more useful! It is also more understandable as my knowledge base has increased.
Very illuminating post. Honest write ups from these guys. I’m still surprised the very many insurance people that often pester WCI whenever he writes on whole life insurance have not come up to tear this write up apart. But I’ll wait. I’ll certainly save this post…it will come in handy whenever I get into discussion with a whole life insurance salesperson again in the future about their business model.
Ric Ferri says the days of AUM advisor is close to the end
Plan Vision charges a fee of $96/yr and Schwab is $30/month after a fee of $350 initiation
Rick Ferri is one of the most expensive hourly rate out there. He is $450 an hour which is equivalent to a 1% AUM on 500k basically. The flat fee guys are just as expensive when u add up the hours. The big secret for them is that no one is tracking the hours spent and they can bill several clients for the same hour. The truth is there are only about 225 work days and they can only really see 4 clients a day max…and prep analysis etc. that’s a gross revenue of $405k per year. I promise you they are making more than that
Yes, just as important to do the math on an hourly advisor as an AUM advisor.
I’m not quite sure about your math though. $450 = < 0.1% of $500K. If you spend 11 or 12 hours you'd get to 1% of $500K ($5K). Lots of advisors aren't making $405K gross, much less net.
when I was near retirement to avoid a fiasco and foolproof my portfolio long term i invested in various cds and various bond funds
when the mkt crashes I will be minimally affected
has worked out quite well
obviously I would be much wealthier but I could not take the risk of losing 50% of my equities
Can You?
curious how many years ago was this?
can your portfolio last through your life expectancy if you’re in little to no equities?
if so, congrats to you for earning, and saving appropriately. If you already won the game, why keep playing, right?
exactly what many do when they reach FI
age 69-70
5M portfolio with 700k in stocks DIY since I read random walk down wall street and books by bogle. Swedroe convinced me by writing about marginal utility of wealth
sleep like a baby-Do not like to lose money
The last bit of the article reminds me of my previous adviser.
I don’t think he’s a bad person, and I don’t think he intentionally sold me crappy products. I actually think he’s just woefully ignorant. He advised me to put all my taxable investments into a single property fund (at a time when local property funds were at peak bubble) and told me he’d put all his dad’s money into that same fund. Shortly after this I started educating myself about finances and realised that he had no clue about proper portfolio design, so I moved my money out and started managing it myself (fortunately before the bubble popped).
I sincerely hope that the line he told me about his father’s investments was just sales talk and that he didn’t actually have all his dad’s money in that one fund.
As Wm Bernstein says Act as if every broker, advisor, and ins. salesman is a hardened criminal
Wow, this is the first time I’ve read an insider view of what really goes on inside the whole life mills. Thanks for this post.
It pretty much matches up to what I’d expect: overall good people trying to make a living selling a bad product.
I think there are some echoes to the drug and medical device companies here.
— TDD
A new drug or a new medical device is likely to be appropriate and beneficial to a far higher percent of the people who get it compared to the percent of buyers for whom whole life insurance is appropriate and beneficial.
Haha, you’d be surprised! ( Google “The High Costs of Unnecessary Care” )
But yes, overall I would say you’d be correct with this statement.
— TDD
Outstanding post, and kudos to the authors who wrote them for sharing their experiences and perspectives. Donovan sounds like a really great guy, client-focused and sharp, and I hope he gets some new doc clients after his post here!
This is all too true. In fact, I feel it pulls punches in the interest of not being too pejorative. I worked for a commission based advisor, and what I basically did for a year was pro bono financial planning.
It was pro bono because I spent hours meeting with clients, created financial plans for them, and ended up determining that they had no need for commission based product.
What did that mean? There was literally no way for me to get paid. Meanwhile, I paid the firm for E&O insurance, email, website, etc.
I stuck with it for longer than I should have because I thought I’d made commitments, and other Catholic-guilt related reasons, but I finally got out, and I can finally be proud of what I do helping folks.
An insurance salesman from Northwestern Mutual isn’t exactly a financial advisor.. he’s just an insurance salesperson. But ok.
Thus the reason there are quotes in the title of the article.
How should a financial advisor sell in order to out the client needs first ? Let’s assume that it is the only job available and it must be taken. How would a sales model look? What procedures could be taken to prosper the client but also make that commission? Is it possible that both parties can win.
I think it’s pretty hard under that model to give minimal conflict advice.
I’m an investment advisor and have now been in the business for 12 years. I’ve worked for several large firms, and got my start at none other than Northwestern Mutual. I mostly agree with what Donovan said. I maybe skipped it over as I read this all quickly but what he failed to mention was whole life is great for THE RICH, and only the rich. For tax benefits of the very wealthy and succession planning whole life provides some great tools! That said, 95% of people aren’t right for whole life insurance.
[My opinion is that] Northwestern is a shady, scummy firm, and so are most of the advisors there. I did just as Donovan, tried drinking the koolaid and buying in at first. Then I started to learn. They force you to sell insurance only for some time, for me, they wouldn’t allow me to get any other license than insurance and health for 1 year. You are supposed to be a “financial guy” and yet you can’t even get training that allows you to sell much of anything. You are a 3 trick pony (life/health/DI). People would ask me all the time about other types of investments and I couldn’t help. It’s not legal to give advice if not licensed and I didn’t like taking a senior advisor on meetings as I felt it really discredited me as a finance guy.
“Sell a 50 dollar policy to all your best friends, it’s an investment and insurance. They will say I have no money to invest, well 50 dollars is all you need to get started is what you tell them. Everyone should own whole life policies”. This is their literal message. When my friends recently out of college, just having kids should have been looking at cheap term with high insurance coverage, I was telling them about whole life like a fool. This is immoral and corrupt. Plain and simple.
I could go on and on about what an awful company this is. I could talk about having my moms assets there with a mentor advisor and how he tried to screw her over multiple times once I left and our relationship deteriorated. I could talk about how he only has a Series 6 and 63 yet talks to clients about equities that he’s legally not able to sell all the time. I could go in to detail how his partner does all the equity trading for him since he failed his 7 and not intelligent enough to try and obtain it again…since he got paid under the table and all, why would he ..I’m sure he thought.
I could talk about how Northwestern tried lying about my moms assets with them when they realized I was taking her account elsewhere. “Just tell us if you’re leaving us” when I asked to de-list her “advisor” from her account. When a rep on their home office desk tried lying saying he couldn’t find her account, then only found part of her account, I told him I knew what he was doing (think comcast not allowing you to cancel service), as I was a full fledged advisor at this point, he immediately gave us all her info for her accounts…I mean the second I said I was aware he was being shady. I called his manager and explained what he had done, how rude he was, they then asked “well are you taking your account elsewhere”. Not ONE sorry, or we will chat with him, nothing.
[I think] Northwestern is scum…stay far far away!
Second anonymous poster…
Obviously I agree with your whole life statement, but as for annuities..you’re completely wrong. Maybe you should spend some time actually learning about them rather than just saying they are probably bad products and you wouldn’t buy them either. First off your company is right. Fixed annuities (including Index Annuities) are not stock/equity replacements. First off fixed annuities are bond /cd replacements and pay far better rates. Now you can add income riders to these products, mainly index annuities (which is the income replacement you spoke of when comparing to an ally account). The comparison to an Ally savings account (which I personally absolutely love) is not even remotely comparable. That is not a pension replacement. An income annuity is.
Variable annuities alone are stock/equity products. They are completely different in this way and are not a bond/cd replacement at all. They are a tax advantaged account for high income/net worth individuals at their core. Now you can also add an income rider which with the ability to invest in the market give you a potentially higher upside for income when you start to take it.
I worked on an annuity sales desk for years. I worked for an amazing firm that didn’t sell bogus annuities either (I’m looking at you Athene types). My job was to teach our advisors on how these products worked and how they could help their clients. My firm encouraged us to not sell to those who don’t fit the product (yes I would tell advisors Im not recommending anything to them. They’d get mad and say they are selling it anyhow. I would then call compliance on them and give them a heads up). I often heard when many calls started “I hate annuities but my clients want one”. I always laughed and said you wont when we hang up this call. Not once, not one single time did we end that call with them still feeling that same way.
Annuities are not for everyone, just like almost all products aren’t for everyone. There are plenty of bad products out there and unfortunately they have a bad name due to those products (most often “bonus” annuities) and the misuse due to lack of advisor’s doing their jobs and making sure their clients use these products as designed (turning on income riders at the right time is one massive issue in this space).
Minor edits made to eliminate potentially libelous statements.
I think your estimate of who needs whole life insurance is way too high. 5%? I’m not sure it’s right for even 1% of doctors, who are already in the top 1-2% of earners. Certainly it’s not right for enough people that there should be more than one agent in a city selling it.
Ty I don’t feel that your experience with Northwestern Mutual can speak for the entire company. I’ve been an intern with the company for quite some time and even I have my series 6, SIE, and 63 all taken care of. Northwestern was kind enough to not only overpay me for the education I bought, but also an additional $1000 in stipends while I was a student at Penn State. I am not the only person in my office who fits this description in the slightest either. I am saddened to hear you were not able to expand your business in your office to investment products, but please remember this is your experience. I have been helping my friends and family with financial planning as a whole, not just life insurance. However, I will say that cash value life insurance is a great defensive investment against the market; I learned this at school, not through company culture. I can also say that people right now want safe money that grows outside of the market because of the volatility of the coronavirus more than ever. Making dials has never been easier when the people answering the phones are in the market for what you offer. Maybe I just live in an affluent area, but I don’t see the issue of allocating $200-$300 from a client on a monthly basis into a cash value life policy when they have a couple thousand dollars left over after expenses each month. Why not put away a portion of your money for when the market goes to crap? People who are using their cash values right now are damn glad they keep growing regardless of the virus. I really don’t feel like anyone in my office has taught me or coerced me or directed me into any real sales approaches. I’ve done Aflac insurance sales and that was rough so I can relate to you frustration in a sales role like that. Now I simply gather information about a client, show them the plan we created for them with the products we suggest, and then the ball is in their court. All our work is done. If you simply put the work into the plan, you don’t need any persuasion. Just let the numbers do the talking. I have found success with letting people come to me after I present them the plan. What I love most about Northwestern is that they just allow me to be me. Yes they teach me about language and things to say but any good rep takes the scripts and makes them their own. Money is taboo to most people and we can’t change that. Just like talking about sex in a public forum, we must use proper language when talking about money to make people feel comfortable. Not quite sure I would call that a sales approach, I kinda just see it as common courtesy. Again, I want to reiterate that I apologize that you had a negative experience. But I would also like it to be known that after reading your comments, I find a lot more appreciation for the Northwestern office I work for because we do things right.
Excellent demonstration of why this website exists and needs to exist.
QUIT SELLING WHOLE LIFE INSURANCE TO PEOPLE WHO DON’T NEED IT. YOU ARE NOT HELPING YOUR CLIENTS. YOU ARE THE PROBLEM I’VE BEEN WRITING ABOUT FOR A DECADE. STOP IT!
Seriously. Stop it. You are hurting the people you’re trying to help.
Selling a whole life policy to someone with only a couple thousand extra a month and likely zero need for a permanent death benefit is financial malpractice. That client almost surely has a better use for their money.
Interesting blog. I got tired of making calls this afternoon (no in office appointments due to Covid19) and read on here for a while. I’m a financial advisor. Its fun to see you bash on Whole Life Insurance. I’ve always been skeptical of insurance companies. I’m licensed to do Life Insurance, Annuities, etc. I think in the last 5 years I’ve maybe dropped 2-3 insurance tickets. It’s mostly garbage.
I haven’t had much success with doctors with my business. I have maybe 400 families and only about 5 doctors. My experience has been prospecting them is more trouble than its worth. No offense. They’re generally good people. They work hard. They’re smart. There are just other a lot of other people that are a lot easier to get as clients and deal with on an ongoing basis once they become clients. And it isn’t even necessarily about personalities or them being know-it-alls. A big part of it is time. It’s nice to have clients who can just answer the phone randomly during the day and talk for 15 minutes when I call. Doctors can’t do that.
I think part of the problem may be physicians get a disproportionate amount of attention from rookie financial advisors. When you’re young and inexperienced the prospect of getting a doctor as a client seems really appealing. They ostensibly have a lot of money and therefore would make an ideal client. But as an advisor’s book of business grows and managing existing relationships takes up more and more of your time instead of prospecting, calling on doctors becomes less and less ideal. So your perspective of advisors might be skewed toward advisors that frankly aren’t very good.
I’ve been out about 12 years and my business has grown to the point I don’t make prospecting calls anymore. I don’t even usually talk to people who aren’t clients. My secretary screens all my calls. If I don’t know who it is, I don’t call them back. I’ll only open an account with someone who comes as a referral from an existing client, or a tax or legal professional, and even then it’s only after a fairly in-depth vetting process.
I can do that because I’m successful. My time is limited. And I’m only interested in doing business with people when I know its going to be a good fit and they are going to be easy to work with. Nothing against doctors but they don’t really fit. They aren’t super easy to work with, and they’ll always have other people in their ear trying to get their business and sell them stuff. I think I’ve had zero doctors as new clients in the past 5 years. And I’m ok with that. That’s someone else’s niche. Some new guy can go tackle that market if he wants. Me? No thanks, I’m good.
I didn’t write this post. It wasn’t written by a doctor either.
Yeah I know. I read a bunch of different posts and wanted to collate my thoughts into one comment and chose, somewhat randomly, to post it here because this is the last article I read. You have a good thing going here. It’s refreshing. Keep up the good work.
I don’t doubt doctors aren’t the easiest group to serve.
I was in business selling insurance and annuities for 56 years. I was not a captive agent but once. I became a GA for several companies which gave me power to give best deal. I have never met an honest buy term and invest difference agent. That business is good for the security sales man on the team who gets all the leads for the difference when whole life is cashed in. Their the cheaters. Thank God some of them were put out of the business. The ones who remain have the highest lapse ration than anyone. I always was able to beat their term with cheaper term or better whole life. They never stop to think in 20 years the client may be unable to avoid a new policy. I have two term policies I have had for 20 years that will expire next year. Whole life does not expire. I bought single premium annuities I could add to, if I chose. My plan was my annuities would grow to my insurance face value in twenty years. The two annuities are over 50,000 beyond my term. I had my cake and eat it yet., If I die this year an extra 150,00 goes to my heirs. The big names that hate whole life and annuities sound good on radio talk show are constant liars about how an annuity works including the female advisors. Some have neither insurance licenses nor security licenses. They tell you what to buy and sell and are very rich con men. I could not give security advise but they can on radio; They also can tell people to drop their insurance and buy term. I would be uninsured andnoninsurable at my age if I had bought only term. If I had stock etc I would not have my assured annuity values . One of my doctor clients lost 150,000 in 2008. He came to me and wanted an index annuity with his 500,000 he had left, He now has over 1 million for retirement. He MAY have made that in market but he did make it in annuities and will still have it if the economy falls again. I was not impressed with the arguments I read here.
I have not met more than two or three dishonest insurance agents. Since I retired I get letters monthly from my clients thanking me for what I did for them and if it were not for me they would have no retirement to live on. Honesty is the only policy they ought to sell. I never had but one person file a complaint on me in all my years and she was a liar who was mad at me because my driver married someone else instead of her. She said I promised 9% interest. Funny thing about it was when she made a complaint about me the commissioner showed her my letter that was delivered with the policy stating the interest was not fixed but so far averaged more than that in the first three years.
Can a man cheat? Yes if he is a cheater. Do men cheat?. Yes, you can in any business. Did I ever cheat? Not once to my knowledge. I think this track will cause a lot of people to not purchase any insurance and their the ones that will cheated. We did not sell insurance and annuities. We paid for houses, cars, and land, clothes and food and education, and gave to charities. If they were disabled they never had to pay. If they died we gave the heirs the money for these things purchased. If they lived they had a retirement on the cash value, or the annuity we sold them. What other vehicle does all that. All other things the “IFS” are maybes.
Sounds like someone touched a nerve. Kind of weird that the only “honest” agents you’ve met sell lots of whole life insurance. But hey, if that’s your experience I can see why you might be skeptical of term life insurance.
you can not read very well. I did not say I only met 2 or 3 honest whole life agents. I said 2 or 3 three dishonest agents. Sorry you can not tell the difference in those two statements. You guys make all life agents appear to be greedy dishonest men. I have not found them so. I have found them willing to share ideas. I remember seeing a fellow agent cry when a man called if he could commit suicide yet. He joked back, yes it has been more than two years now. When the man did kill himself and he got the call there was no consoling him. He left the business. Great men sell insurance and love helping people with the right policy. I have sold more term than whole life but care has to be taken to sell whats best for each client.
You said, and I quote:
I have never met an honest buy term and invest difference agent.
Looks like it is you who cannot read very well (or remember what you wrote.) But if you keep up the ad hominem attacks, that will be your last post here.
And I’m sorry members of your profession encourage people to kill themselves. Not something I’d be proud of or joke about.
why did you not publish what I wrote. I waste 45 minutes of my time and used no profanity, nor named names and gave true facts. I am very disapointed in your unfairness to forbid the other side. .
Relax Tex, it went to the spam folder. No, I have no idea why. It just happens to a certain percentage of comments, especially long ones.
Wow! this is great.
The post was good and refreshing. But I think anyone that works for an organization who doesn’t buy or believe in the products their company sells is really just a hypocrite. Those sales techniques pay your salary! If you think the company’s products and methods are bad – quit. Otherwise you’re really just a coward tattling on the Internet.
He did quit before writing this article for all the reasons he lists. That’s why when you look up his credentials at the top it shows where he works, Skyview Planning. It is not Northwestern Mutual.