The Office of General Counsel issued the following opinion on November 7, 2005, representing the position of the New York State Insurance Department.
Re: Consulting Fee for an Insurance Agent
May a licensed insurance agent charge its insurance clients a consulting fee, for consultations done in relation to potential changes and options, including increased coverage, on a life insurance policy that the agent currently receives a commission from?
Yes, pursuant to N.Y. Ins. Law § 2119(a)(1) (McKinney 2000 & 2005 Supp.), an insurance agent may charge a consulting fee, so long as the fee is based on a written and signed memorandum agreed upon prior to the consulting.
An insurance agent has sold individual life insurance policies to a number of employees whose premiums are paid for by their employer. The agent also manages the employees' 401(k) plans. The agent may consult with each of them individually and discuss various options and changes to their 401(k) plans. In addition, the agent discusses possible additional life insurance coverage that the employees may be eligible to add to their current coverage, for which the employer would pay the premium. The agent may not charge consulting fees for the 401(k) plan because the agent is not licensed to sell securities. However, it has been inquired as to whether the agent can charge a consulting fee to the employees for discussing the additional life insurance coverage options with them. It is assumed herein that the employer will be aware that the Agent will be obtaining such agreements.
N.Y. Ins. Law § 2119(a)(1) provides:
No person licensed as an insurance agent, broker or consultant may receive any fee, commission or thing of value for examining, appraising, reviewing or evaluating any insurance policy, bond, annuity or pension or profit-sharing contract, plan or program or for making recommendations or giving advice with regard to any of the above, unless such compensation is based upon a written memorandum signed by the party to be charged and specifying or clearly defining the amount or extent of such compensation.
Thus, an agent may charge a consulting fee so long as the compensation is based on a written agreement signed by the person to be charged (the employee), which clearly specifies the amount and extent of the fees.
The consulting fee must be made for the insurance consultations only and must not include charges for the 401(k) consultations. The fees must be reasonable in relation to the services provided for the insurance consultations.
However, if the agent wishes to make a commission on the sale of insurance as a result of the consultation, then the agent must comply with N.Y. Ins. Law § 2119(b)(1), which reads:
No person licensed as an insurance agent, broker or a consultant may receive any compensation, direct or indirect, as a result of the sale of insurance or annuities to, or the use of securities or trusts in connection with pensions for, any person to whom any such licensee has performed any related consulting service for which he has received a fee or contracted to receive a fee within the preceding twelve months unless such compensation is provided for in the memorandum or contract required pursuant to subsection (a) hereof.
Accordingly, if the agent wishes to earn a commission on insurance sold as a result of the consultations, the consulting fee memorandum must so specify.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.