Another area where there is a need for firms to live up to the fiduciary standard is life settlements. Life settlement products have grown in popularity in recent years, and there’s some evidence that they are being aggressively marketed without giving investors the information they need to make an informed decision.
At one time, the owner of a life insurance policy who no longer wanted or could not afford it had two options: to let the policy lapse or surrender it to the issuer for its cash surrender value. The emergence of a secondary market for existing life insurance policies provides a third alternative: to sell the policy to a third party for less than the net death benefit, but more than the cash surrender value. Such transactions are typically referred to as life settlements.
While life settlements can be a valuable source of liquidity for people who would otherwise surrender their policies or allow them to lapse, they can have high transaction costs and unintended consequences. Individual policyholders have also said that determining a fair price can be very difficult. Given the complexity of these products, and the sensitivity connected to any product linked to end-of-life issues, firms need to make extra efforts to ensure that they are serving the long-term needs of both their customers and associated family members.
FINRA can implement and enforce high standards, and we have done so, but the larger point is that there needs to be a shift in the way some firms approach their development of new products and the way they market these products to the public. Your integrity and commitment to good business practices should be the first line of defense in investor protection, and I urge you to view your responsibilities in a true fiduciary spirit.
Source: Rick Ketchum Chairman And CEO, FINRA / Mondovisione
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