CFP Teacher: Choose Clients Carefully

For decades, state insurance regulators have been implementing “suitability” regulations that require agents and advisors to know enough about clients to offer them products that suit their needs.

In 2010, the Financial Industry Regulatory Authority adopted FINRA Rule 2090. The rule requires financial professionals who are subject to FINRA oversight both to offer clients products that suit their needs and to comply with “Know Your Customer” requirements.

Know Your Customer regulations require financial professionals to verify clients’ identity, to prevent money laundering and other forms of wrongdoing.

Insurers have developed their own guidelines for screening clients.

Reinsurance Group of America, for example, published an article in 2019 that encourages insurance underwriters to look out for applicants who lie on applications, pay premiums that seem to exceed their financial resources or know too much about insurance claim procedures.

Accordia Life, an arm of Global Atlantic, is an example of an insurer that uses payment method requirements to try to avoid working with questionable customers. In an Agent Market Conduct and Compliance Guide, it notes that it does not accept premium payments made via cash, money orders or traveler’s checks.

Emily Whitish, the owner of High Five Design Co., a company that designs websites for therapists, counselors and coaches, recommends screening out people who are likely to be a poor fit by setting up a website that gives a clear description of what you do and don’t do, along with a contact form that shows whether prospects are likely to be a good fit.

Ogle’s Strategy

Ogle gave her process for sizing up personal lines customers as an example of the relationship fitting process.

When helping clients, “you’ve got to understand what’s important to them,” Ogle says. “Are they more scared of having a claim and finding out they don’t have enough coverage? Or are they more focused on the annual premium for an insurance solution and budget concerns?”

From Ogle’s perspective, one good test of fit is what happens when prices rise.

If the customer is more focused on the premium bill coming in today than having quality coverage in place, “I’m not sure we are a match,” Ogle says. “It’s better to know right up front if your goal as a financial planner and their goal line up.”

Hanna Ogle. Credit: Ogle