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Wall Street & Insurance Companies Are Important – Just Not For You
Lest I have given the impression that I don’t believe in the importance of insurance companies and the large banking/investment firms, this is not the case. I believe they both play critical roles in our economy, roles vital to our progress and safety. Their primary lines of business are necessary to our economy. My problem arises when they decide to play outside their primary businesses and give the perception of wanting to “help” the American public.
Investment firms and large banks are critical in capital formation and lending necessary for businesses to operate in our economy. They provide funding for start-ups to be able to innovate. They help firms raise capital in public markets to continue to expand operations. They offer necessary lending facilities to help organizations meet cash flow needs and be able to write payroll checks. They allow individuals to purchase homes by making mortgages available. These functions are critical to our economy and should not be minimized.
Insurance companies help mitigate many forms of risk for organizations and individuals. They create and provide products which allow us to be protected at home and in our businesses. They provide protection that allow organizations to continue functioning after the death of critical members or destruction of property. They allow us to collectively share some of our daily risk thereby reducing the cost of that risk. These functions are necessary for our lives and businesses to be able to function in an orderly manner despite the risks which surround us.The problem, in my view, arises when these companies move from their product creation and distribution roles into advice delivery roles. Dispensing good advice takes a very different mind frame than does distributing product, a mind frame which these companies have been unwilling to understand. If they understood, they would not fight the requirement that they work in their clients’ best interests. Advice delivery requires a willingness to allow profit-motives to fall secondary to the desire to truly help people. Product distribution can be focused on helping people, but it remains profit-motivated first. These companies should remain out of the advice delivery business, because they are not working for you. They should stick to their core, critical roles and allow financial advice to be dispensed by professionals who are independent of this distribution function.
The financial planning industry began in and formed out of the insurance and investment/banking industries. The financial planning movement began because insurance and investment professionals recognized that they needed to look at a client’s life more deeply than their industries had been doing. Many of these early pioneers also recognized that they needed to be independent of these distribution channels to truly work for their clients. Insurance companies and investment firms understood a new revenue stream was developing and have worked hard to capitalize on this revenue stream. They did not participate in the financial planning movement to help people and work in their clients’ best interests, but to capture a new way to sell products. Insurance companies and investment firms should stick with their core roles and allow fiduciary financial planners to dispense financial advice.
Knowing these roles should help you make well-informed decisions about whom you wish to work with when seeking financial advice.
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