Depending on how one does the math,there are somewhere between 100 and 200 designations for various specialties infinancial services, many specific to insurance. The number of designationsrelated to products and services for senior citizens has grown exponentially inrecent years, and no wonder: the leading edge of the 76-million-person babyboomer generation, is reaching retirement, and of the elderly—their parents—thefastest growing group is over 85. On the one hand, this represents a greatopportunity for innovation for insurers, agents, brokers, and advisors and forsenior citizens to better protect their financial future. On the other hand, itis a development fraught with risk, not only for consumers but, some argue, forthe industry itself.

 

The problem, simply put, is thatsome designations are universally recognized, carry great authority, andrequire rigorous course work and examinations. Others can be earned by spendinga weekend, or less, at a seminar and passing a multiple-choice open-book test.Consumers don’t know which is which. People in the industry can’t necessarilytell the difference—and some don’t care.

 

Red Flags

Senior citizens need protectionfrom “designation deception,” state insurance legislators were told at thespring 2008 meeting of the National Conference of Insurance Legislators(NCOIL). As National Underwriter reported on March 10, Karen Tyler, presidentof the North American Securities Administrators Association (NASAA), said that,typically, seniors would be invited to a free “educational” luncheon seminarwhose actual purpose was strictly to sell.

The problem is nationwide. TheWisconsin Office of the Commissioner of Insurance recently reported that, inonce enforcement action, an agent allegedly violated the law repeatedly bymaking unsuitable sales of annuities to elderly consumers. The agent wasordered to pay restitution to 40 consumers, pay a forfeiture of more than aquarter of a million dollars, and surrender his license to sell insurance. Inthe past two years, eight Wisconsin agents were similarly charged with andpunished for failing to consider suitability when selling annuities to seniors.

Annuities are not the only concern.Many states have either passed or are contemplating legislation to restrict thesale of stranger-originated life insurance. STOLI, as it is called, is thepractice in which investors persuade senior citizens to purchase lifeinsurance, agreeing to an arrangement in which the former collect the deathbenefits when the latter die. Either the purchaser collects an upfront payment,or the investors agree to finance the premiums. According to the AmericanCouncil of Life Insurers (ACLI), which has conducted a vigorous grassrootscampaign against STOLI, seniors may also be required to turn over their medicalrecords to the investors, often hedge funds, and to respond to regularquestioning about the state of their health.

Tyler, among others, makes a directconnection between deceptive practices and dubious designations, noting thatrequirements for designations vary enormously. A string of letters following aname looks very impressive to the uninitiated, as do terms like “certified,”“chartered,” “accredited,” and the like.

 

Leading the Charge

For some years now, Larry Bartonhas been on a crusade. Barton is the president of The American College, the80-year-old non-profit educational institution offering training and developmentfor financial services professionals. The designations awarded on completion ofthe College’s courses are nationally recognized and tough to earn.  ClarkWilliams, director of the Licensing Services Bureau of the NYS InsuranceDepartment, notes that The American College is the only such organizationspecifically named in the state’s statute, commenting that the program is verystrict: “It ain’t easy,” he says. “These are strenuous courses.”

Barton, who holds a PhD in publicpolicy, sounds the alarm about what he calls “rogue” designations, those withquestionable content, testing, and certification. “When I see a CPA onsomeone’s business card,” he says, “I know what that means. When I see a CLU[Chartered Life Underwriter], or CFP [Chartered Financial Planner], or ChFC[Chartered Financial Consultant], I have a very good sense that that stands forsomething of rigor and quality. But the alphabet soup is completely, wholly outof control.”

Making the analogy between physicaland financial health, Barton explains that, while “board certified” has a veryspecific meaning for a neurologist or cardiologist, there is no telling whatboard or certification body awarded a financial services professional aparticular designation. Some of the programs, he says, are the equivalent ofthe notorious diploma mills, run by groups that are solely “into profit,”requiring that participants “send more money to be recertified every couple ofyears.”  “I am horrified,” he continues, “that you can get credits byreading an article and filling out an open-book quiz.”

The American College “does not havea monopoly” on legitimate designations, Barton emphasizes. And he is also quickto say that some “weekend designation courses” are valuable and worthy. “Someare really good introductory programs,” he says. “They teach about seniorliving, they talk a little bit about annuities, they talk about long-term care.But they are not designations.”  Moreover, he adds, “Average consumerswould be horrified if they knew that when you claim to be certified orchartered in senior affairs, you merely went to a Holiday Inn for two and ahalf days watching Power Point presentations and took a test that 95 percent ofthe participants passed.”

As examples, a January 2006 articlein InvestmentNews described a “certified wealth preservation planner”designation, based on a 24-hour course and a multiple-choice exam; and a“master class” or correspondence course, resulting in a “certified long-termcare” designation, available to anyone with $1,000 and two days to spare.

In contrast, for example, the RHU(Registered Health Underwriter) program consists of two required courses and anelective. The group benefits course has weekly classes for two and a halfmonths. The CLU program consists of five required courses and three electives.Diane Fowler, executive director of PIA CT/NH/NJ/NY—herself the holder of anMBA—offers the example of the CIC (Certified Insurance Counselor), adesignation offered for nearly 40 years. “The program has very stringenteducational components and is constantly reviewed and updated by academics andother experts in education and insurance.” It takes years, she says, and theexaminations are difficult—only about 65 percent pass. Moreover, maintainingthe designation requires attending further programs annually.

 

Wake-Up Call

The efforts of Barton and othersare bearing fruit. In early April, the Senate Special Committee on Agingproposed legislation to create a single, national standard for establishingappropriate professional designations for financial professionals servingsenior citizens. Among other measures, the Senior Investor Protection Act of2008 sets standards for legitimate certifications and designations, definingthem as programs offered by academic institutions having regional accreditationor meeting the standards outlined by the NASAA Model Rule on the Use ofSenior-Specific Certifications and Designations. The bill refers to programsthat meet less stringent standards as “misleading designations.”

The committee is chaired by SenatorHerb Kohl of Wisconsin, a state that has been a breeding-ground for initiativesto protect senior citizens against deceptive practices. In August 2007,Wisconsin Insurance Commissioner Sean Dilweg created the Annuity SalesSupervision Advisory Committee, charged with reviewing “current insuranceindustry practices in the supervision of its producers’ sales of annuities,along with some of the abusive sales tactics associated with those products,”according to a news release.  The committee is also working to recommendregulatory standards for future sales.

Wisconsin is also one of a growingnumber of states participating in the Long-Term Care Partnership Program, whichlinks private long-term care (LTC) insurance with Medicaid, enabling individualsto protect all or some of their assets and still qualify for Medicaid undercertain specific circumstances.  At the same time, the state is working ona LTC training program for agents, which requires a minimum of eight hours ofinitial training and at least four hours of on-going training every twoyears.  The training requirements will take effect in January 2009.

It is significant that Dilweg isnot only Wisconsin’s insurance commissioner, but also vice-chair of the NAICLife Insurance and Annuities (A) Committee, which is chaired by NYSSuperintendent of Insurance Eric Dinallo.  The newly-created SupervisingAnnuity Sales working group is modeled on Wisconsin’s Annuity Sales Committeeand will similarly look at industry practices in supervising producers’ salesof annuities, as well as the use of designations.

Around mid-April, the NAIC vote ontwo related documents, an alert to senior citizens and a bulletin to insurersand producers.  A draft of the former, headed “Senior CitizensBeware—Question Credentials of so-called ‘Senior Specialists’,” notes thatseniors are “particularly vulnerable to investment advice made by ‘financialexperts’.”  It suggests that senior citizens be wary of the “Free LunchInvestment Seminar,” explaining that “[t]here is always a catch” and notingthat federal regulators who examined 110 firms offering free seminars foundthat every one was, in fact, a sales presentation.  The alert also urgesthat credentials be questioned, because, while some involve “a difficult studyprogram” and “extensive exams,” other designations “are earned simply by payinga fee.”

The bulletin, which, Dilwegexplains, carries the force of law, “applies to the marketing and sales offixed and variable life insurance and annuities and requires the proper use ofdesignations by producers.”  Under the terms of the bulletin, the use ofdesignations is considered part of the advertising of products and, as such, isthe responsibility of insurance companies, whether they or the producersprepare the ads.  Producers must provide documentation of any specialexpertise to which they lay claim; and producers who misrepresent theirexpertise, as well as carriers who permit their producers to do so, are subjectto penalty.

 

 

Up In Arms, Down in Flames

Even as states are moving toclarify designations—eventually, many anticipate, to make them uniform andspecific—Barton is still sounding an urgent warning.  Though Dilweg feelsthat the majority of agents and insurance companies are trying to “do the rightthing,” Barton sees a “universal challenge” and says, “I think that there aremany savvy producers who leap-frog into the world series fast and on thecheap.” He places the responsibility, too, on those who subsidize worthlessdesignations: “Shame on CEOs who pay for these programs,” he declares. And while Barton acknowledges that some just fall into the trap laid byunscrupulous providers, from his point of view, they are no less dangerous, notjust for consumers, but for the industry.

“I think we’re on the verge of ascandal, and we’re too good an industry for that to happen,” he says. Among his most serious concerns is the prospect of widespread litigation. Senior citizens are a protected class, he explains, and “you have someattorneys now contemplating suits against advisors who knowing sell unsuitableproducts to a group that is protected.” 

“Either this industry will cleanitself up,” he asserts, “or it will be done for us, and that will beembarrassing and costly.”

But Barton offers a carrot to gowith the stick.  It is estimated that the insurance industry has afour-year retention rate of barely over ten percent.  Not surprisingly,Barton says, companies that put enormous value on professional education—thoseinvesting in professional designations and masters degrees—have some of thehighest retention rates in the industry.  When a company tells itsemployers and producers, “We want you to be a professional, to be deeplyknowledgeable and up-to-date,” and fully supports rigorous training and meaningfuldesignations, “people are far more likely to be loyal, to stay in the industry,and to be ethical,” Barton believes.

Until, and unless, the industry,regulators, and legislators heed the warnings and take alphabet soup seriously,caveat emptor. [IA]