Tuesday, January 15, 2013

Checking in on Insurance Licensing

This blog - like the Coalition for Financial Security - - likes to keep tabs on the relationship between the regulation of financial professionals and Americans' access to the tools necessary to achieve the American Dream.  CFS's research has concluded that there are not enough financial professionals working in middle-class communities.  CFS's research has also shown that those most likely to work in middle-class communities are the least likely to get licensed as financial professionals.

Last year, we showed how state licensing regulations could change overnight simply because a new vendor administers licensing tests.  In that case, it got more difficult to get an insurance license in Ohio when a new tester came to town.  This month we will look at individual states.  

The chart below shows the first-time pass rate on the Life Insurance agent exam in Florida.  As the chart shows, one out of two testers passes the exam the first-time.   For comparison, in states like New Jersey, Illinois or Tennessee, the pass rate approaches 70 percent.   At points last year in Florida, the pass rate dipped into the mid-40s. 

Why do we see these differences in exams that are essentially measuring the same thing?  Are would-be agents in New Jersey or Tennessee smarter than would-be agents in Florida?  Doubtful. Do the states have different regulatory hurdles for the same profession? Apparently they do.  

The key question going forward are 1) should they; and 2) what is the impact on consumers?  These are questions that CFS continues to explore. 

What's REALLY Undermining Retirement Security?

Washington has done a lot of looking at retirement security in the last few years.   We've witnessed debates about how to get Americans to save more and how to protect savers from supposed conflicts of interest that likely don't exist (fiduciary anyone?)  The Washington Post is out today with a look at another angle in the crisis, Americans withdrawing from retirement savings to pay current expenses.

Key point:
More than one in four American workers with 401(k) and other retirement savings accounts use them to pay current expenses, new data show. The withdrawals, cash-outs and loans drain nearly a quarter of the $293 billion that workers and employers deposit into the accounts each year, undermining already shaky retirement security for millions of Americans.
In terms of solutions, there is one interesting idea at the end. Encouraging workers to establish "emergency savings accounts" that could be withdrawn tax free AND THEN "plowing money" into tax-sheltered retirement savings.

Interesting stuff. Unlike some other debates, this would appear to be a real problem that deserves attention.