What Will The Patriot Act Mean For Life And Annuity Producers?
Anti-money laundering, customer identification, scrutinizing large dollar transactionsthese are not exactly top-of-mind issues for many annuity or life insurance producers.
Yet they soon will be, due to proposed regulations now being finalized by the Treasury Department. These regs, developed under Section 352 of the USA Patriot Act of 2001, require financial institutions to establish anti-money laundering programs.
Broker-dealers are among those that already are subject to such regulations, so variable annuity and variable life insurance reps already are processing business accordingly, points out Carl Wilkerson, chief counsel-securities and litigation for the American Council of Life Insurers, Washington, D.C.
But within a few months, perhaps this fall, more of the insurance communityincluding the fixed product sector–will also be subject, he says.
(Section 326, dealing with obtaining customer identity information, will also apply to insurance, when the regs come out.)
Some fixed producers are only vaguely aware this is coming. “No one I know talks about it,” says one advisor contacted by NU.
But many are curious about how the new regs will impact their business. Will insurance producers need to ask existing clients probing questions? What kinds of identification must they obtain? Will the procedures impact client relationships, pro or con? Will compliance take a lot of time?
Registered representatives already subject to the regs offer some insight.
“The broker-dealers have provided us with training,” says Ben Baldwin, president and owner of Baldwin Financial Systems, Arlington Heights, Ill. “They teach you the procedures and what you need to know about your clients in different situations. My guess is that 99% of National Underwriter readers already know their clients, so this will not be onerous.”
The industry is in an especially good position to adjust, he adds, because “insurance producers have moved toward financial planning and advisory services, and you cant do that kind of work without knowing your clients, where their assets are and related financial information.”
In short, the planning environment is itself a deterrent to money laundering, Baldwin says.
Adjusting to the regulations does takes some time, say reps. “Ive heard its a big paperwork burden at the broker-dealers,” says Thomas E. Nugent, investment consultant with Wealth Management Services, Hilton Head Island, S.C. But his own firm is a small boutique money manager, so “the impact on us is de minimis,” he adds.
“We know our clients and we take new clients mostly through referrals. And a lot of our business entails retirement plan rollovers, so this gives us the documentation we need.”
But “its a whole different scene” at larger firms, especially those working in areas where there are a lot of wire transfers, says Nugent, citing comments made to him by peers at those firms. “At the larger firms, reps sometimes have to fill out a lot of forms, go back to the prospect, and do a lot of give me this and give me that.”
Baldwin, the Illinois rep, agrees that when the new forms related to the regulations came out, “there was a lot of complaining. I complained, too.”
But that probably had more to do with the fact that the forms were not yet woven into the applications than the extra work entailed, he adds. “Now, the forms are included in the applications, and it doesnt feel like that much more work.”
His view is that there is no point in getting upset about the changes. “It doesnt do any good. These regulations are here, and we all have to deal with them. Its a level playing field.”
As for worrying about whether a client might balk at being asked to show identifying information or to indicate the source of large sum deposits, Baldwin says these are natural questions to ask. And most clients wont be upset providing the answers.
For example, if a client comes in with a $50,000, “the rep might greet the client with a smile and say, Congratulations! How did you get so lucky?” or something of the kind, he says.