New York Attorney General Eliot Spitzer, the man with an apparent mission to unearth and stop conflicts of interest and other problems on Wall Street, has a new focus: He's reportedly targeting the insurance world, issuing subpoenas to major insurance brokers such as Marsh, a subsidiary of Marsh & McLennan
Spitzer is not alone. The New York Times reports that California's insurance commissioner, John Garamendi, is also looking into these conflicts of interest.
So what's the problem? Under investigation is how insurance brokers are compensated for selling insurance. Imagine this scenario: You need insurance and you go to a broker. Your understanding is that the broker will get you the best deal -- the package that is right for you. But the broker is offered various incentives to recommend particular companies and policies. So there appears to be a conflict of interest for the poor broker. Does she do what's right for you, or what's right for her wallet? Surely many brokers make the right decision, but not all will.
Critics of this status quo suggest that these practices are illegal. Some defenders say that they're not illegal if they're disclosed, which they typically are, such as on the websites of the subpoenaed companies. Other defenders point out that brokers will disclose even more if asked. But many insurance purchasers simply don't know to ask and haven't read all the fine print on websites and various agreements.
So what's a Fool to do? Well, for starters, understand that as frequently happens on Wall Street and in the financial services arena, there are often conflicts of interest at play. Be cautious and curious when buying something. Ask questions. And whenever you're comfortable doing so, make your own decisions; you can probably count on yourself not getting any kind of kickback from service providers.
You can learn a lot about the different kinds of insurance you probably need (and you really do need several kinds of insurance!) in our Insurance Center. You can also get some professional, objective financial planning advice from our TMF Money Advisor service (a painless free trial is available). Or drop by our Advisor Center to learn how to select a financial advisor on your own.
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.