Disclosure issues, stemming from advertising by financial advisors, have moved to the New Hampshire legislature in the form of two bills.
The debate has brought with it some questions concerning disclosure of ads involving equity index annuities.
One bill, SB 111, already has passed the New Hampshire Senate and is now in the House. It essentially requires point-of-sale disclosure of a rep’s business relationships. Spearheading it is David A. Kutcher, owner of DAK Financial Group, an Alton, N.H., firm that sells insurance, much of it EIAs, and a small amount of securities.
The other bill, HB 716-FN, has not yet passed either house, but the House Commerce Committee has retained it for summer discussion. The disclosure provision bill would clarify a point about existing disclosure requirements. It is supported by the New Hampshire Bureau of Securities, Concord.
Both initiatives are being promoted as a means of achieving meaningful sales disclosure that reduces confusion among financial product consumers.
Kutcher began pushing for SB 111 after the New Hampshire Securities Bureau cited his insurance ads as violating a securities licensing provision [in RSA 421-B:6, V(b)], says Paula T. Rogers, an attorney lobbying for SB 111 on behalf of Kutcher. Rogers, who practices with the Devine, Millimet law firm, Concord, N.H., says the provision in question concerns display of business relationships in sales and advertising.
The Kutcher ads included billboards, television commercials, radio spots and print materials for the general public. They advertised EIAs, the firm’s lead product.
The Bureau faulted the ads for not identifying Kutcher’s broker-dealer relationship as stipulated in the RSA provision (mentioned above), says Rogers. The Bureau said such disclosure is required, even when a rep’s ads are for insurance products, she says.
The Bureau did not single out EIAs as reason for the action, Rogers notes. However, in recent testimony regarding SB 111, Mark Connolly, director of the New Hampshire Bureau of Securities, did mention EIAs as an example of the type of product where advertising disclosure problems can occur, say several sources.
Barry Glennon, an attorney and deputy director with the Bureau of Securities, explains the Bureau’s position this way: EIAs are not regulated by the Bureau of Securities, he says. But “from a pure sales perspective, they may have more the appearance of a securities product than perhaps a variable annuity.”
Both EIAs and VAs “remain and should be sold as insurance with certain guaranteed benefits,” Glennon continues, adding “both are complex products, and important information regarding charges and risk need to be addressed with the prospective purchaser.”
Rogers, who served as New Hampshire insurance commissioner for 6 years, says she did visit the Bureau to discuss, on behalf of Kutcher, why the RSA requirement was applied to Kutcher’s insurance advertising. The Bureau said it wants to prevent customer confusion, part of which requires revealing broker-dealer relationships upfront, she says.
The Bureau has since proposed removing 2 words (“and equally”) from the state’s current broker-dealer and B-D agent sales and advertising disclosure requirements. The amendment is found in HB 716-FN. It will align the New Hampshire rule more closely with current NASD requirements, contends Glennon. “Our primary concern is that clients understand the selling agent’s relationship with the various financial services companies they represent, through disclosure on sales and advertising pieces.”
Kutcher views the Bureau’s proposed change as awkward and non-conducive to rational disclosure since it would still require B-D disclosure on insurance ads, says Rogers. That would confuse customers, she maintains. “For instance, what if a dual-licensed agent starts selling an LTC policy?” Because of that, Kutcher sought, and obtained, sponsorship of a bill (SB 111) that would require point-of-sale disclosure of the appropriate business relationships, she says. Such disclosure would be more meaningful for consumers, she contends.
Both sides have told NU they want a workable outcome–a disclosure rule that strengthens consumer understanding. So, discussions are continuing.
In the air hangs a question regarding how the proposals are viewed by the State of New Hampshire Insurance Department. At press time, the commissioner was at a National Association of Insurance Commissioners’ zone meeting and was unavailable for comment on the issue.
Kutcher, who stopped advertising for 9 months, has since received a Bureau letter allowing him to advertise, says Rogers.
“From a pure sales perspective, equity indexed annuities may have more the appearance of a securities product than perhaps a variable annuity,” says the deputy director of New Hampshire’s Bureau of Securities