The Time to Define Insurance Advising is Now

Assertion 4. In our demutualized world where insurance manufacturing has separated from distribution, IP can only have value by codifying insurance advisement as a scalable, oversee-able, nationally regulated discipline.

I will prove assertion 1, that IP has no value in my (annuities and life insurance) domain, by proving assertions 2-4.

Let’s begin by proving assertion 2, part 1: How do products sell? To understand this, we need first to define “product” and “sell.”

Products are nouns. In the context of insurance and financial services, products are issuable containers, the distribution of which are highly regulated. Products are issuable legal contracts within which IP can be embedded, and in exchange for the distribution of which compensation can be paid to a financial professional (FP) in respect of either, but never concurrently, A or B.

• A is from inside the noun in direct respect to a sale thereof (these are commissions, and they refer to sales in the agency and brokerage channels), whereas

• B is charged upon the AUA/AUM following a product’s introduction into an advised portfolio. (B refers to RIA channel)

Now that we know what product means, we move on to sell.

Sell means the exchange of remuneration in direct respect to X, where X is a verb in the RIA channel, and a noun in the agent/broker channels.

Wholesalers are people who routinely sell “wholes” and we can describe their identity by putting an r at the end of the verb that they routinely perform. (By analogy, runners are people who routinely run. We don’t usually call someone a runner who once ran across the street.) All wholes are nouns. The human mind cannot conceive of a whole verb.

Wholesalers sell nouns, and nouns sell when they have wholesalers dedicated to selling them. Wholesalers work for either a noun manufacturer or a noun seller. An organization that manufactures or sells nouns will not switch which noun it has its wholesalers sell unless the new noun is more profitable than the incumbent noun. A product concept thus cannot have value, because what is valuable about the product/noun is the seller’s prior investment in manufacturing and/or wholesaling infrastructure, not clever IP that does not have higher profit margins than does the incumbent product set.

Now we move on to defining the second half of assertion 2, which is about trademarking. Trademark (the application of which differs for IP protection relative to name protection - name protection is much easier to defend in court) requires that the IP be noun-embeddable, whereas servicemarked means the IP is a service. Services are verbs. If you google “trademark definition,” when applied to IP defense as opposed to brand defense, you too will become aware that the definition of this word requires the IP owner to be able to either manufacture or to sell (remember what sell means from above!) the product, which again is the legal container within which the IP is embedded.

Insurance provides for immunization of liabilities (or contra-assets). “Insurance advisor” is not a defined term. Financial advisor (FA) is defined for those who hold FINRA affiliation, and as per FAQs released by FINRA on Reg BI interpretations, FA means a person who holds the authority to sell verbs (specifically, it is a person who has an RIA affiliation, which means they can sell verbs. RIAs sell verbs only. Agents and brokers sell nouns only. The DC space does not allow for commissions; commissions denote noun sales, as described in part A of “product” definition.) Financial advisors provide ongoing asset maximization advising and they frequently receive their compensation by advising upon, and thus billing upon, AUM accordingly. This asset max advising is a service. IP embedded in services – for example, the managed account services provided by Morningstar Inc – is servicemarkable. It has been servicemarked, not trademarkable, because it’s verbs (services), not nouns, being sold.

Absent codifying insurance advisement so that insurance professionals can also sell verbs (i.e., absent popularizing a billing approach like benefits under advisement or income under advisement), there can’t be value to intellectual property in our field, because:

• You can’t defend it via servicemark (because there’s no framework for selling services at scale in our domain), and

• You can’t sell it as a noun, because an organization can only monetize a trademark in insurance from previous investment in manufacturing and/or distribution.

An incumbent will only do this if the new product has higher expected profit margins than does its existing portfolio. Not likely in today’s fee conscious environment.

Because my prior words are true, not having a scalable advisement frame for liability immunization or income optimization means intellectual property that is servicemarked in the annuity field also cannot have value, because it can’t be sold (to sell again means to exchange remuneration in direct respect to X. Non-codification of insurance advisement means we can’t sell verbs at scale in insurance).

So concludes my proof of assertion #2, that new IP can’t have value in my field, because it cannot be sold as either a verb or as a noun.

Assertion 3: The impossibility of IP having value in my field is an offense about which utter outrage is merited. It is a direct affront to the very principles of capitalism. Capitalism as a governing economic frame relies heavily upon IP being protectable and monetizable to encourage invention.

Thus I question: Why is mine the sole field in this country to which capitalism is not permitted to apply, and why are other members of my community not apoplectic about my true words?

Consider specifically the implications that not codifying verb sales in my domain has now that post-SECURE, Guaranteed Retirement Income Contracts (GRICs) introduced in plans enjoy a safe harbor. Plan advisors, like all other fiduciaries, are inherently taught that asset maximization is the only valid lens through which financial advisement can occur. Yet consumer financials occur not only on the left side of the balance sheet, but also on their income statement (which is where retirement income, the “RI” in ERISA, along with annuitization, occurs), their statement of net worth, their cash flow statement, and the right side of balance sheet, which is where all forms of insurance play. Plan advisors don’t know annuities and vice versa for annuity experts. Financial advisors can’t imagine why we insurance people believe our solutions have value, because they are taught to see the world through the lens of asset maximization and are not taught about liability immunization or income statement maximization as a valid entry point to a consumer finance worldview.

Retirement income (GRICs, which are annuities) in DC will only take off if we band together to fight for their place. Actuaries used to have a role in asset liability matching when we as a society still had DB plans. There isn’t a natural spot for an actuary in DC plans because neither liability consideration nor retirement income consideration is yet required to advise in DC. DC naturally emphasizes asset maximization, because AUM is its underlying billing model. Yet it is illogical from a regulatory standpoint to incentivize via tax deferral qualified savings that are not used for retirement income, given that the provision of retirement income is the very reason why the government temporarily postpones its tax revenue on qualified assets in the first place.

The Society of Actuaries, NAIFA and IRI must all strongly consider the possibility that my words are true, and if they feel they are, they need to begin acting yesterday.

Representatives of any of these or other industry organizations who can help change the societally sub-optimized true circumstances that I have just described to you are invited to email me at [email protected] and request a deck that further explains my perspective and the societal dangers that follow logically therefrom.

Insurance advisement should be a national field (since it is not about noun/contract placement but rather is about contextual advisement, it is not per se corollated to an individual contract the way some state insurance law allows annuity consulting to occur, thus the field would not make sense to be state regulated). Insurance advisement should be policed similarly to how RIAs are overseen (which allows for state conduct policing for smaller entities, but still relies on a framework defined by national statutes.)

Achieving this framework is my career goal for the next 27 years, until I begin taking Social Security at age 70. I will not stop truthfully communicating my concerns on these matters for the lesser of 27 years, or when this framework is adapted.

Thank you in advance for your patience with this dense text. Reasoned, polite, logical pushback to these arguments is strongly encouraged.

Michelle Richter is co-founder of a newly formed registered investment advisor, Annuity Research & Consulting, and she serves as executive director for the Institutional Retirement Income Council (IRIC, iricouncil.org), a nonprofit think tank advocating for income derived from defined contribution. Ms. Richter’s opinions are her own and do not necessarily correspond to those of the IRIC or any of its member organizations.

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