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Case Study: Trust, but Verify

Thursday, December 15, 2011

The phrase “Trust, but Verify” is most often heard in politics, but it can also be applied to your trusted advisors. Trust is best built when the leap of faith between what is known and what is unknown is as small as possible. Clients hire advisors for experience and knowledge in areas they do not have.  When CPAs, tax attorneys and/or trust officers need information about the pricing, performance and suitability of their client’s life insurance, the most common source of “research” has been to ask some number of “trusted” agents/brokers for their best recommendations of a suitable product for their client.  Those agents/brokers that are providing your clients with best-available rates and terms would hardly object to you obtaining a report that verifies that they indeed have the most suitable product.

So how much could what you DON'T know about a client’s life insurance be costing you and your clients? Let’s answer that question by considering an actual real-life client case, as follows:

Case Study

  • Client needed $5M of additional life insurance.
  • Client consulted with one of largest family offices in the U.S.
  • Family Office requested assistance from a broker they trusted and who marketed/represented he was independent, unbiased and committed to doing what is best for the client. 
  • Broker requested quotes from 35 insurers and assured the client and the family office that he had considered all products suitable to the client’s circumstances. 
  • Trustee (separate from the family office) refused to serve as trustee without independent verification of the brokers claims.
  • Such independent research revealed that the broker had considered only 72% of the market and that the recommended product was approximately $400,0001 more costly than products known to be available in the market (if you subscribe to Veralytic). 

So how much did what the broker DIDN’T know cost this family office and their client?  Well, it would have cost the client approximately $400,0001 had the trustee not insisted on Veralytic research and could have cost the family office loss of the $10s of millions of investments in this client account.  However, because the trustee DID insist on Veralytic research, it didn’t cost the family office or their client anything. 

On the other hand, this situation did cost the broker who didn’t subscribe to Veralytic research more than $100,000 in commissions that he could have earned had he just had the information he needed to actually deliver on his marketing promise and representations he actually was independent, actually was unbiased and actually committed to doing what is best for the client.

Clients hire you for your experience and knowledge in areas they do not have and know and expect you to take care of them and do what is in their best interest. However, the terms “independent”, “unbiased” and “client’s best-interest” can mean something different to the CPAs, tax attorneys and trust officers than they do to life insurance agents and brokers.  While segments of the life insurance industry are vigorously lobbying to maintain the different meanings of these words, certain agents are brokers are using Veralytic research to independently verify that when they say they are serving the best-interest of the client, they actually mean it. 

This is why accountants subscribe to information services like BNA (Bureau of National Affairs), CCH, Inc, and Thomson Reuters/RIA so they can look-up relevant tax authority to properly advise their clients. This is also why attorneys subscribe to information services like Lexis/Nexus, Martindale and Westlaw so they can look-up relevant case law to properly represent their clients. And this is why investment advisors subscribe to information services like Lipper, Morningstar, and ValueLine so they can research those investments that are well-priced, performing well and most suitable to the needs of their clients.

For example, if a CPA does not have the proper tax authority to properly advise their clients, the client could get a large tax bill from the IRS and the CPA could lose the client or face accusations of malpractice or breach of fiduciary duty.  Likewise, if an attorney were not to subscribe to the information services necessary to know relevant case law authority to properly represent their clients, the client could face legal action and the attorney could lose the client or worse face accusations of malpractice or breach of fiduciary duty.  And if a trustee were not to subscribe to the information services necessary to properly document the exercise of their fiduciary duty to investigate suitability, the trust beneficiaries could receive less than they otherwise “should” have and the trustee could face legal action seeking the difference between what the beneficiaries actually received versus what they “should” have received (as was the case in Cochran). 

As such, if you are a CPA, tax attorney or trust officer, use Veralytic research to demonstrate to your clients that you are taking care of them.  If you are an independent life insurance broker, use Veralytic to BOTH demonstrate that you are genuinely interested in serving the best-interest of the client AND eliminate competition in advance with greater market intelligence. 

Veralytic is simply the fastest, easiest, and most comprehensive and cost-effective way to independently verify to clients and their advisors whether or not the pricing and performance of existing or proposed life insurance is in their best interest.  Only Veralytic is accepted for independent client representation, endorsed by the New York Bankers Association (NYBA) and compliant with industry regulations and established case law. 

Use the Veralytic Reports to determine the appropriateness of pricing, the reasonableness of performance expectations for invested assets underlying policy cash values, and overall suitability for your (client’s) policies based on the 5 factors of suitability.  Click here and get up to 3 Veralytic research reports under our NO-Risk trial subscription.

1This case study is based on an actual client situation but is meant for informational purposes only. The case study is in no way intended to be used as a primary basis for insurance or investment decisions. Similar results are not guaranteed and will vary based the individual client situations. Clients should consult with their own financial, tax, legal, and accounting advisors before implementing any insurance or investment plan. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security or investment product.

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