Resolving the Conflicts For Financial Advisors in Life Settlements

A life insurance policy is a personal asset. A life policy can be sold like any other personal asset.

A  life settlement is when a life insurance policy owner sells the policy to a third party for an amount more than the cash surrender value but less than the policy death benefit for an immediate cash payment. Life settlements are not new having been first approved by the U.S. Supreme court in 1906, over 100 years ago. However, the practice of life settlements is largely unknown to most people

Life insurance settlements are a valuable alternative for elderly individuals who no longer need, want or can’t afford their life insurance to obtain an immediate cash payment for a significantly higher value than simply cashing in a policy for its surrender value or letting the policy lapse. This enables individuals  in many instances to receive a return on investment from years and even decades of premium payments.

Life settlements also result in individuals avoiding the payment of escalating premium payments that reduce the value of other retirement assets while achieving a significant influx of cash to the individual. The individual can then  pay for things like long term care expenses, provide immediate support of their children or assist with educational expenses for grandchildren, reinvest the cash with other existing investments or anything else the client desires to do. Maybe just take a long vacation!

So why do so many financial advisors avoid inquiring about their elderly clients’ life insurance as a part of managing their client’s financial affairs? 

First, the life settlement business in many states is unregulated resulting in unscrupulous individuals and life settlement firms engaging in practices that are not necessarily in the best interest of the individual policy owners. With no regulation, bad actors can operate free from any fear of any revocation of a license or other disciplinary actions from a State licensing board. 

As a result, some financial advisors avoid referring clients to third parties for life settlements. This is a reasonable reaction by those financial advisors who don’t want the bad acts of someone else to be attributed to them. It’s just not worth the risk.

A second reason is that financial advisors associated or employed directly by large national firms are prohibited by their underwriting departments from discussing life settlements with their clients in order to avoid any potential claims of a conflict of interest. Financial advisors recommending a life settlement to a client in order for the client to obtain immediate cash to further invest with the advisor in some instances may not be in the best interest of the client. Again, this reason is understandable and the underwriting policy exists to protect  both the advisor and a client.

However, what about those elderly clients who may be interested in and benefit from a life settlement but are unaware of their availability? 

Surveys of seniors confirm that 80% have life insurance and over one half of those seniors don’t know life settlements exist. And over 70% of seniors stated they felt a financial advisor has a duty to advise them of the availability of life settlements.

So, what is the answer?  It is possible for an advisor  to refer a client to a reputable and committed life settlement specialist who operates on the same premise as the financial advisor to provide services with the best interest of the client being the goal. 

The advisor is protected two ways. First, the advisor is not directly or indirectly in the client’s life settlement. The client works independently with a life settlement specialist. Second, by referring a client to a reputable life settlement professional ensures the client will receive a full and complete analysis and disclosure before deciding on whether to pursue a settlement.

Financial advisors referring clients to third parties is far from unique. Clients often seek advice from their financial advisors on all sorts of matters that the advisor is neither licensed to perform or specifically trained to provide advice. For example, a client who needs advice and assistance with selling real estate is routinely referred by a financial advisor to a licensed real estate agent. A client needing tax advice is referred to a CPA. A client needing legal advice is referred to a lawyer. These referrals happen all the time and are really a “value added” by the financial advisor looking out for the interests of his/her client.

All clients who are referred to me for advice and assistance in life settlement matters receive a full complement of services and guidance to make sure they understand all the factors about a potential life settlement. Ultimately, they base their decision on the information and analysis we provide. I have a specific process to evaluate each potential life settlement case. I have affiliations with other experts to gather information on a client’s state of health, life expectancy and information on the client’s policy, all of which are carefully reviewed with the client.

All of this analysis is provided free of charge or obligation to the client and provides the client with a basis to make their own decision on whether a life settlement is right for them.

I have always found that referring clients to qualified professionals in matters where I have no expertise or a possible conflict  only strengthens the loyalty and relationship between me as the referring professional with my clients.

In conclusion, financial advisors should be able, at no risk, to satisfy all their duties to clients and still fully advise them to explore life settlements where appropriate by referring the client to a qualified life settlement professional.

Contact me today! I can help.