The marketplace for financial products has long been subject to a disjointed array of state and federal laws and regulations. For any consumer trying to choose among the multitude of annuity products, the sales experience is more likely to be dictated by which government agency regulates a particular product rather than an individual’s need to compare one product to another.
Fortunately, things may soon start to improve for consumers as well as the financial services industry. National Association of Securities Dealers Chairman Robert Glauber has issued a clarion call to the industry, regulators and consumer interests around the country, hoping to start a dialogue and introduce common sense into the marketplace. By having the NASD convene the Annuity Roundtable in Washington earlier this month, in conjunction with state insurance and securities regulators, Glauber hoped to get state and federal regulators to put differences aside and work together to better serve the marketplace and protect consumers.
In fact, the NASD and the Minnesota Department of Commerce have announced they will form working groups to compare regulatory standards in the areas of supervision, suitability, advertising, sales force training and disclosure requirements. Hopefully, participants will be able to rise above turf struggles to “make life easier” for consumers, companies and professionals who sell the products.
In this era of transparency and good governance following scandals on Wall Street and in corporate boardrooms, what we need is better, more efficient regulation to reflect dynamic product changes and heightened consumer expectations. Unfortunately, the current regulatory patchwork quilt remains disorganized, inconsistent and unnecessarily expensive. But the greatest failing of the current structure is that it doesn’t adequately meet the current needs or expectations of consumers, companies or distributors of annuity products.
The quality of consumer protection in the financial services marketplace should be consistent and should not depend on product features that determine whether a product may be regulated by federal or state regulators with varying degrees of protection and consistency. Consumers purchasing annuities and other financial services products should be adequately protected, no matter who regulates their products.
At the same time, companies should be subject to consistent, sound and efficient regulation. History has shown that too much regulation can kill a market. Conversely, inadequate regulation can foster market distortions and short-term gains for a few that usually lead to long-term losses for many.
In a healthy, competitive marketplace companies will be prompted to treat consumers fairly without the intrusion of a government regulator.
Fortunately, a growing number of companies have accepted that responsibility and stepped to the fore with a greater commitment to ethical business practices for sales and marketing of financial products. These companies abide by stringent principles and maintain active self-critical analysis infrastructures. In this new world of self-regulation, companies have realized that the court of public opinion and reputational risk have greater immediacy and far outweigh the threat from a government regulator. In the area of marketing and sales of annuities, life insurance and long term care insurance, nearly 60% of the market already has made that systemic switch to meaningful self-regulation through compliance with rigorous standards and the certification process of the Insurance Marketplace Standards Association (IMSA).
These companies are dedicated to doing the right thing and committed to continuous improvement. It may sound simplistic, but it works. Companies that maintain an active, rigorous internal compliance program with quantifiable measurement tools are successful in other ways, as well.
A recent Georgia State University Study found companies that make that internal investment and commitment to sound compliance practices have greater return on assets, higher financial ratings, lower legal expenses, lower lapse rates and fewer complaints. These companies aren’t perfect, but with comprehensive policies in place to monitor sales practices, they can catch problems before they may become widespread–and long before an after-the-fact regulatory exam might do so.
No regulator, state or federal, can be everywhere all the time. In light of the troubling reports of annuity marketing and sales abuses, there needs to be more diligent regulatory oversight. And companies that take responsibility for their own business practices and follow clear ethical guidelines should be given incentives for maintaining this kind of ongoing self-analysis. Companies committed to continuous improvement through self-analysis can be a valuable tool for regulators as they seek efficient ways to assure that all consumers receive appropriate protections.