The days of top-selling insurance agents earning luxury vacations, golf outings, fancy dinners and diamond-encrusted rings are over — if U.S. Senator Elizabeth Warren has anything to say about it.
The Democratic senator from Massachusetts released a report today titled “Villas, Castles, and Vacations: How Perks and Giveaways Create Conflicts of Interest in the Annuity Industry.”
Warren asked 15 top U.S. life insurers to detail their incentive and non-cash compensation programs. Thirteen of the 15 said they offered kickbacks directly to agents, indirectly through third-party gift payments, or both. In their responses, the insurance companies called non-cash compensation “common in the industry” and “a secondary source of sales compensation.” The remaining two said they refuse to provide non-cash direct or indirect kickbacks.
“Companies shouldn’t be allowed to offer expensive vacations, prizes and other kickbacks to agents in exchange for selling costly, second-rate investment products to unsuspecting customers,” Warren said in a release. “This investigation highlights the need for a strong Conflict of Interest Rule to protect the savings of families trying to save for retirement and to ensure a level playing field for companies and advisors who want to do right by their clients.”
She calls current incentive disclosures inadequate, saying companies use vague language and bury the disclosures at the end of prospectuses. In one case, she notes, a prospectus passes the buck, saying, “You may ask your registered representative how he/she will personally be compensated, in whole or in part, for the sale of the contract to you or for any alternative proposal that may have been presented to you.”
Examples of non-cash compensation her office found include:
- a five-day, four-night stay at the Cove Atlantis on Paradise Island in the Bahamas for top-selling agents and their guests;
- a trip to Walt Disney World, with expenses covered for children of sales agents who had an extra $600,000 worth of sales;
- a $1,500 Tag Heuer or Movado Watch;
- a diamond-encrusted NFL-style Super Bowl Ring.
The U.S. Department of Labor’s proposed conflict of interest rule “would eliminate the worst sales practices of the annuity industry and the retirement investment advice industry more broadly,” the report states. “The rule would close the loopholes in existing law by requiring that all advisers who give retirement advice specifically directed to an individual investor must act in the best interest of their clients. This means that a retirement investment adviser cannot steer a customer to an inferior product simply because it boosts the adviser’s own income or comes with an enticing giveaway. It would also require that advisers clearly and prominently disclose any conflicts of interest.”
The report estimates that legal kickbacks to life insurance agents cost Americans $17 billion each year.