Drawing the Line Between Financial Advisors and Insurance Agents

Drawing the Line Between Financial Advisors and Insurance Agents

What is the difference between a financial advisor and an insurance agent?

There was a time when the question might have seemed a bit silly, as they inhabited distinctly different universes and provided markedly different products and services. These days, though, it seems everyone’s both an advisor and an agent.

Perhaps in certain heads, anyway, because the distinctions still hold true. First, insurance agents aren’t required to act as fiduciaries – serving the client’s best interest to the exclusion of all else is not an essential part of their brief. Technically, they are only required to offer products deemed “suitable” – appropriate to the public at large, but not necessarily to the particular circumstances of the individual client.

That means that if an insurance agent can choose between a range of ‘suitable’ products, and one of them brings a commission higher than the alternatives, the agent can present it to the customer without any further ado – even if one of the other products was cheaper for the client.

This raises issues when the insurance agent claims to be a financial advisor. Advisors are supposed to analyze the client’s individual case and then select products that suit the situation. An insurance agent starts with a product range and tries to make the client fit.

The situation with advisors is nominally better, although in some cases, similar dangers lurk. Clients are often unaware that commission-based products have been selected for their portfolios, simply because they neglected to read the relevant notification – a common enough occurrence.

Nevertheless, advisors working in a fiduciary capacity are required to provide the products that best suit the client’s case – as our featured author comments, they must act as virtual trustees. That’s how the best of them operate and it protects clients from conflicts of interest. For advice on how to find a suitable advisor, click through to the full article.

For more information, please read:
The Difference Between a Financial Advisor and an Insurance Agent | CRNA Financial Planning


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