Dale Irvin, a famous American comedian, once said that a
saint is someone who, upon death, gets a heavenly condo, a
full saints pension and a day named in his honour. I
imagine that to reap those benefits, a saint must be extremely
honest, humble, and trustworthyall moral values.
And since so many of us fail on the first item: that of
honesty, our days may well remain named Monday to Friday,
You see, the problem with honesty is the law. This is so
because honesty is an item of ethics, and while the law is
a codification of ethical principles, man-made law, is still
a long way removed from what we desire in terms of redress
for unethical behaviour.
This means that redress for unethical behaviour is not widely
available under the law. So, even though financial planners
have to do courses in ethics in order to get certain professional
designations, there is very little in law to remedy breeches.
Ethics is really a branch of philosophy concerned with moral
behaviour. Todays problems have arisen mainly because
business has been so focused on competition that the ideals
of business co-operation have fallen by the wayside, and morality
is a tool of convenience.
There are three grievances that clients relate from time
to time, which fall under unethical behaviour. They are classified
in financial planning as churning, twisting and replacement.
They are all examples of unethical advice and conduct.
Replacement is the act of terminating an insurance policy,
and replacing it with a new one. In some cases, this may be
of benefit to the client. However, in the majority of cases,
it is of greater benefit to the salesperson.
How? Through commissions and new sales production achievements,
from which the salesperson reaps greater rewards. Old policies
pay minuscule commissions, new policies pay big commissions.
Old policies dont qualify the sales persons for conventions
and trips abroad, new policies do!
Sometimes a salesperson is able to convince a client to
cash in an old policy, and to substitute a new policy that
seemingly gives more dollars of coverage than the old policy.
What the salesperson may not say to the client, however, is
that the new policy may never have cash values to take out
In the US, there are definitive laws that punish such actions.
Locally, however, such laws are lacking.
In the interest of the client: cash value withdrawals should
only occur when there is a need to fund education, emergencies,
or if structured needs were factored into equation at the
onset, to facilitate expenditure/investment.
Twisting is the act of inducing a policyholder to abandon
an existing policy with one company and to buy a new one from
a different company or even a bank. Salespeople are able to
do this either from bad-talking another institution or misrepresenting
the facts and financial status of first company.
Some unscrupulous sales persons wait for a downturn in the
stock market and an announcement that certain stock prices
have taken a plunge, to rush out with advice to stop policies
issued by that company. This is wrong!
Life policies and annuities are contracts that have to be
honoured by the provider. Hence the benefits clients bought
are still as good as gold, and there is no need to cancel
the contracts. Non-guaranteed dividends may not
be paid, but the core contract is still of good value.
I will have to continue next week, but now, I know why Santa
Claus never got a day named after him, and we have to call