However, investors should be aware that some financial professionals may appear much more independent than they actually are. They may have ties to insurance companies that are not easily visible without delving deeper into their websites and disclosures. This can be important for investors who prefer advisors that are not affiliated with insurers and their financial products.
The three big advisory firms in the northeastern US—Beststate Financial in Boston, Barnum Financial Group in Connecticut and Fortis Lux Financial in New York—may seem independent based on their names and what they highlight on their main landing pages. In fact, their brokers work for MML Investors Services LLC, which firms disclose at the bottom of their websites.
MML is owned by Massachusetts Mutual Life Insurance Company (which, in turn, is owned by its policyholders, is not publicly traded). According to A.M. Best Company, a credit-rating firm specializing in insurance, it ranks No. 4 in assets among the top U.S. life and health insurance companies. And page 14 of the 29-page disclosure document made available to clients upon brokerage account opening states that some MML brokers may have incentives — sometimes including higher earnings — to sell MassMutual insurance products. Some brokers must meet minimum sales of MassMutual products to keep their jobs, the disclosure says, and such sales help them qualify for Medicare and retirement benefits. (At other times, brokers may have incentives to sell other insurers’ products, but not to retain their jobs and benefits.)
To be sure, Bestate, Barnum and Fortis Lux don’t call themselves independents and their connection to MassMutual, while not front and center, can be found on their websites. Still, some former consultants who worked at firms as recently as two years ago say that, based on their comments, many clients were unaware of the firms’ ties to the insurance industry.
In general, it can be costly for investors to make assumptions about a financial professional’s fairness, say consumer advocates and some competitors.
Whether they call themselves independent or just appear to be, advisors directly associated with an insurance company or brokerage are “somewhat still obliged to sell their products,” says Bernie Clarke, head of advisory services at Charles Schwab Corp. Schwab Provides Support. He says it services approximately 15,000 independent consultants, trustees, who do not have these kinds of product sales obligations.
The presence of some firms “suggests a level of fairness,” says Micah Hauptmann, director of investor protection at the Consumer Federation of America, who speaks about the industry in general. Ultimately, he says, “what matters is how financial professionals and their firm are compensated and what their incentives are.”
MassMutual’s response
MassMutual says that about half of its affiliated agencies do business under the MassMutual brand, and the other half operate under other names, known as DBAs — “doing business as.” It’s not the only insurer that allows this.
It states that its affiliated agents comply with, among other things, industry standards and regulations governing sales practices, required disclosure and advertising, and that the “vast bulk” of its affiliate agencies’ investment and insurance sales are non-MassMutual products. is of
The insurer said in a statement, “We provide flexibility and choice to the agencies and financial professionals who are affiliated with us in how they run their businesses, including the ability to offer products from MassMutual and other carriers.” “
While MassMutual says that its DBA agencies “prominently disclose their affiliations with MML investors”, three firms Baystate, Barnum and Fortis Lux do so at the bottom of their landing pages—and are flagged there. Do not assume that MML is a MassMutual entity. MassMutual says a Google search for “MML Investor Services” reveals the name MassMutual, and it says the three firms aren’t doing anything misleading.
Baystate, Barnum and Fortis Lux declined to provide their comment, instead MassMutual.
Maggie Seidel, a spokeswoman for Finseca, an insurance-industry trade group, acknowledges that companies may choose to mute insurance connections for marketing reasons, but adds that the practice is not deceptive.
great reach
The three MassMutual affiliates are sizable.
Barnum says on his website that he has $30 billion in assets under management and 320 professionals. According to Baystate’s website, there are 300 consultants, 200 support staff and 16 offices in New England. And Fortis Lux had about 170 delegates in 2021.
According to Cerulli Associates, a Boston-based market-research firm, MassMutual ranks second among insurers in the number of securities brokers with 7,933 as of 2020, behind only Lincoln National Corp.’s Lincoln Financial Network. The ranks of MassMutual’s brokers doubled after 2016 when it acquired MetLife Inc.’s retail advisory force, which included Barnum and Baystate.
Wealth managers associated with insurers have faced challenges in recent years, and some large insurers have backed out of business.
Donny Ethier, senior director at Cerulli, says advisors associated with insurance companies are often limited to products that some investors consider expensive, such as annuities and whole life insurance, and according to one belief “they are more likely to seek out a rich menu of other financials.” cannot offer products such as third-party exchange-traded funds and mutual funds.” Such agents sell relatively more insurance products than completely independent consultants, according to Cerulli.
Eric Rather, president of Canopy Wealth Management in Middleton, Wis., who worked as an advisor at Northwestern Mutual Life Insurance Company from 1992 to 2018, says that at Northwestern he found that some potential clients were reluctant to meet him “because they feared that insurance products will be sold to them.”
Another challenge occurred when Obama-era federal regulators threatened to expand the fiduciary rule to also include advisors to brokers and insurance agents. Amid opposition from insurance-industry trade groups, a less-stringent rule known as “regulating best interest” was eventually adopted. Reg BI requires brokers—and insurance agents to register as brokers—to take steps and measures to reduce conflicts of interest, but only when recommending securities transactions and strategies, unlike brokers, fiduciaries. Obtain informed written consent for any conflicts usually within the entire customer relationship.
These days, money-advisory firms are governed by a “fragmented set of different rules” for investment advisors, brokers, and insurance agents, says Michelle Richter, an advisor with Fiduciary Insurance Services LLC, which deals with wealth managers, including those affiliated with insurance companies. recommend to. She says that sometimes, the same professional must notify clients that they are and are not acting as a fiduciary. Generally speaking, she says that looking for freelancers can be “misleading” for people with a strong insurance affiliation.
reading revelations
Some insurance companies, such as Northwestern Mutual, have specialized sales and advisory forces that are required to display their insurance brands with the DBA name. But others, such as Guardian Life Insurance Company of America and Lincoln Financial Network, are less strict, requiring their open-model DBA advisors to disclose their insurance connections in a less prominent way.
The Guardian and Lincoln maintain that there is nothing misleading about the practice and that they are not doing anything wrong. and their affiliations, and the conflicts and incentives they generate, can be found in the disclosure documents required by the Securities and Exchange Commission. This includes Form CRS and Reg BI disclosures for brokers, says Melanie Kenter Lubin, president of the North American Securities Administrators Association.
The information is for investors, Ms. Lubin says. “It’s critically important that they read this,” she says.