Fiduciary vs insurance sales conflicts

The Significance of SEC v. Cutter Financial: How an SEC Enforcement Action on Mis-sold Index Annuities Could Impact the Life and Annuity Space [1] In March, the SEC filed an enforcement action against Jeffrey Cutter, a Massachusetts-based insurance agent, and registered investment adviser, for allegedly engaging “in a pattern of deception designed to steer his investment advisory clients to certain insurance products over other investment options.”[2] (Complaint at 1, 4). The complaint insinuates that Cutter may have used his capacity as an RIA for the limited purpose of liquidating existing client investments before recommending that clients allocate a proportion of these assets into index annuities. (Id. at 5). Once allocated, Cutter reputedly “made false statements to insurance companies” and used “deception” to encourage his clients to surrender these annuities in order to generate another round of up-front commissions for himself. Id. at 2. Although index life and annuity products are subject only to state regulation, this action sends a warning shot to insurance agents who also offer investment advice through an RIA that they may be subject to the higher standards of fiduciary care regardless of the type of business they transact. [3] Some insurance agents like Cutter see the very light state regulation of fixed annuities and IUL as a business opportunity to generate high up-front commissions while evading their duty to act in clients’ best interest as an RIA. (Id. at 4). If successful, this action could extend these advisers’ fiduciary duty as RIAs to all business they conduct, including the sale of index annuities and IUL. This case creates a potential pathway for the SEC to regulate advice about fixed insurance products if sold by RIAs. Going forward, it will be interesting to see if this regulatory action prompts civil litigation against firms that hold themselves out as registered investment advisers while offering fixed insurance. Though the sale of fixed annuities and life insurance by non-RIA investment advisers would remain outside the purview of the SEC, the agency nonetheless sends a warning that the fiduciary duty is not to be manipulated at the client's expense.   [1] Securities and Exchange Comm. v. Cutter Financial Grp. LLC, No. 1:23-cv-10589 (D. Mass. Filed March 17, 2023) [2] If proven, this behavior violates § 206(1)-(2) of the Investment Advisers Act of 1940, a broad anti-fraud provision that prohibits investment advisers from engaging in omissions, misstatements, or schemes to defraud clients. [3] The Harkin Amendment of the Dodd-Frank Act requires the SEC to treat indexed annuities as exempt securities under § 3(a)(8) of Securities Act of 1933.  

Ever wonder how some firms offer both “fiduciary advice” and commission-based products? You’re not alone, and if you’ve gotten calls from companies like First Command, this setup probably rings a bell Let’s break it down 🧩 Some financial professionals are dual-registered, licensed to give fiduciary investment advice and licensed to sell financial products like insurance or annuities That means they can switch roles in the same conversation, depending on what they’re recommending 💼 In one moment, they’re acting as a fiduciary, required to put your interests first when giving advice 📄 In the next, they may shift into a sales role where they’re only held to the “suitability” standard and can earn commissions It’s perfectly legal In a sales role, they’re not giving advice, so the fiduciary standard doesn’t apply But that role switch? It’s not always obvious to the client (or should I say customer?) Even if the advisor is a great person and genuinely wants to help others, there’s a massive conflict of interest involved when they can sell products to clients who deeply trust them “Fee-based” advice models are common across the industry, not just at places like First Command, and they require more scrutiny from the client’s side If someone’s helping you plan your financial future, it’s fair to ask: 💬 How are you compensated? 💬 Are you acting as a fiduciary 100% of the time? 💬 Do you or your firm sell investment or insurance products? Transparency matters. So does aligning incentives #Veteran #MBA #WealthPlanning

Finding good professional help can always be tricky, but here’s one really important piece of advice: Don’t take financial advice from someone who also sells financial products. Unfortunately the financial services world is MOSTLY FILLED with these hybrid professionals. They call themselves financial advisors who help with your financial problems AND they conveniently sell you the products to fix those problems. No matter how much they may throw around the word “fiduciary”, that business model represents a massive conflict of interest. Whether or not they believe it themself, their actions will absolutely be skewed towards pushing you into the products they sell. After all, that’s how they put food on the table. I’ve talked to countless expert financial advisors who DON’T sell insurance products (but do advise on insurance needs). When I ask if they would recommend permanent life insurance to build wealth, they all say no. Yet when you talk to financial advisors who DO sell permanent life insurance, virtually all of them are sure that their clients should be buying it. That’s the conflict of interest in action. So when you’re seeking out financial advice, keep this in mind. If you need a financial advisor, great. When you need insurance, great. Just get those services from dedicated professionals. If your financial advisor suggest you buy permanent life insurance, it’s time to run away. They’re not acting as a financial advisor, they’re acting as an insurance salesman. p.s. Most of you know I co-founded Nectarine with Vivi and Shane to address this problem! Nectarine advisors don’t sell any products, manage your money, or earn any commissions. They charge a clearly advertised, flat hourly fee and that’s it. But they can absolutely share a screen with you and help you directly with your investments, insurance, and everything else in your financial life. As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often. -Jeremy #insurance #salesman #financialadvice