Michael Kitces, most recently named one of the Top 25 most Influential Advisors of 2012 in AdvisorOne magazine, is also a fan and friend of Veralytic. Michael recently blogged in his well read “Nerd’s Eye View” about Veralytic role in the life insurance industry. Michael says, “Simply put, Veralytic seems to have crafted the first truly effective tool for performing proper due diligence on proposed and existing life insurance policies. In today's world, a planner faces a genuine risk of liability for failing to analyze the costs and performance of a recommended investment using the available tools like Morningstar and recommending a 1-star fund. One wonders how long it will be until a planner could be held similarly accountable for failing to evaluate the costs and performance of a recommended insurance policy using the available tools like Veralytic and recommending a 0-star life insurance policy?”
Based on some comments that Michael has received on his article there does not seem to be any issue with advisors recognizing that they need to perform some kind of due diligence on an insurance policy held by their clients or inside a trust. The push back seems to be on the difference between a “policy review” from either the existing agent who has an investment in the current policy or an insurance agent/agency who proposes a “free policy review” in which they are looking for an opportunity to offer a replacement policy in which they will be paid a fee or commission.
Much of the insurance industry continues this questionable and risky practice of comparing hypothetical illustrations, such hypothetical comparisons can be considered “misleading” and “improper” by both financial and insurance industry authorities. Hypothetical illustrations are a comingling of undisclosed policy charges and unsubstantiated performance assumptions, and may not separately measure policy expenses (as required under Section 7 of the Prudent Investor Act) separate from the reasonableness of performance expectations (as required under Section 2 of the Prudent Investor Act), they are clearly not comprised of all required or customary characteristics, and are thus not complete. These systems/services can also lack completeness that results from the comingling of data that generally-accepted prudent practices require to be measured separately, lack reference to independent 3rd-party measures for average price and performance, and lack objectivity due to the artificial limitations on the number of insurers included in their sample population.
So when does “Free” costs too much? In our last case study as well as the case study before that one, both case studies including agents that represented to the advisor that they are independent, unbiased, and were committed to doing what is best for the client. The agents reported that they had searched all available suitable products, yet in both cases when the advisor consulted with Veralytic, it was found that the agents did not search the entire market and both cases could have cost the clients over $600,000 in combined costs.
On the other hand, Veralytic’s patented, objective and rules-based research is compliant with both industry regulations and established case law. For far less than the cost of manually comparing illustrations, Veralytic research independently measures policy charges and performance, and documents the competitiveness and suitability of the inforce policy and/or product being recommended relative to the universe of peer-group product alternatives. Having this documentation can help protect your company or your clients against potential lawsuits, arbitrations and customer complaints. In addition, if your company or clients serve as ILIT trustees, Veralytic Reports help you document compliance with Uniform Prudent Investor Act (UPIA) Sections 7 and 2(c)(5).
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. Veralytic has made a special offer to Kitces readers in the blog, “Will Veralytic Reform the Life Insurance Industry?” 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.
Michael Kitces, MSFS, MTAX, CFP®, CLU, ChFC, RHU, REBC, CASL is a partner and the director of research at Pinnacle Advisory Group, a financial planning and investment management firm in Columbia, Md. He is well known as the publisher of The Kitces Report and the blog Nerd’s Eye View through his website (www.kitces.com/blog). Kitces has also been recently named as a Practitioner Editor of the Journal of Financial Planning and speaker at FPA conferences.