More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
As the comment period on the SEC's proposal to regulate indexed annuities as securities under the Securities Act of 1933 came to a close on September 10, the Financial Planning Association (FPA) told the SEC it supports federal regulation of indexed annuities.
Such regulation would go a long way in curbing the litany of abuses against seniors that are associated with sales of indexed annuities, the FPA said. Dan Barry, FPA's director of government relations, says he thinks it's highly likely that the proposed rule will be approved, even though there'll be a lot of kicking and screaming from the insurance industry. When such an approval will come is uncertain, however. It remains to be seen if SEC Chairman Christopher Cox will push the rule through before his departure from the Commission in a few months, and the regulator is also still breaking in three new commissioners. The SEC plans to hold its Senior Summit in Washington September 22.
The rule is good in that "it recognizes that indexed annuities have both insurance and securities characteristics, and proposes a system of dual insurance/securities oversight," Barry told the SEC in the FPA's comment letter. He says the proposed rule is also a "significant step forward in ensuring that the people selling annuities fully understand the product they are recommending, and that consumers are making an informed choice."
Under the proposed rule concerning equity-indexed annuities, Section 3(a)(8) of the Securities Act provides an exemption under the Securities Act for certain insurance and annuity contracts, according to the SEC. In releasing the proposed rule, the SEC said it "would provide that an indexed annuity is not an 'annuity contract' under this insurance exemption if the amounts payable by the insurer under the contract are more likely than not to exceed the amounts guaranteed under the contract."
The SEC further states that the proposed rule would address "the manner in which a determination would be made regarding whether amounts payable by the insurance company under a contract are more likely than not to exceed the amounts guaranteed under the contract." The Commission said the proposed rule "is principles-based, providing that a determination made by the insurer at or prior to issuance of a contract would be conclusive if, among other things, both the insurer's methodology and the insurer's economic, actuarial, and other assumptions are reasonable."
The proposed new definition would apply only to indexed annuities issued on or after the effective date of a final rule, if adopted, the SEC said.