Following up on the Cash Value Life Insurance as an Asset Class post, I wanted to spend some time talking about how Cash Value Life Insurance get's used for retirement and wealth accumulation.
Believe it or not, there's not a lot oversight when it comes to the financial services industry when it comes to what you can and cannot reasonably recommend as long as you don't violate the really big rules. Like a real estate agent who suddenly turns into a financial and business adviser in order to convince a client to take a 10% haircut on their selling price because he or she wants to close the deal, financial advice can often be driven by someone's need to pay a mortgage, pay down a credit card debt, afford a vacation, etc. And for the most part, sadly, no one cares. It's not until someone kills a sacred cow that problems begin to arise. Put a 65 year old's entire portfolio into midcap stocks, spread that sale around into different funds so as to avoid the sales load breakpoint, and do it all a few days before the dividend date and you'll really upset some people. Those are concrete examples of big no-no's any compliance officer should be more than capable of thwarting. These examples are a violation of suitability. On the topic of cash value life insurance, and its place as a retirement vehicle, the question is one of suitability. Is it suitable?