Better Communication May Mean Better Suitability

“Don’t presume the pattern you see is the pattern of their overall sales,” he advised. In many cases, Mr. Doscher explained, a company’s products may serve to fill a niche for the brokers, and may represent only a small portion of their overall sales.

Joseph Tuorto, managing director and chief compliance officer at the brokerage firm of Lensco-Private Ledger, agreed that broker-dealers will have to work with insurers as they navigate the regulatory seas. “Going forward,” he said, “we’re going to need a cooperative effort between broker-dealers and insurance companies” in dealing with the states. “What we have to do is think about how we can share information better.”

When a life insurance company does see a potential problem in the sales of its products, Mr. Tuorto said they should absolutely contact the broker-dealer with the information, so both companies can work out whether or not there is a suitability issue, and if necessary, how to resolve it.

“If you see something, share it with your broker-dealer,” he said.

One development that will better enable policing for unsuitable sales, Mr. Tuorto noted, is the automation of the processes used by brokers, which he explained will make it much easier to identify any patterns that could indicate a problem.

However, brokers are also handicapped at times by regulations, he added, specifically mentioning rules that prohibit asset transfers. “One of the struggles broker-dealers have is that often an advisor will change firms,” he explained. “They can take their clients, but the assets can’t be transferred. So, if the client wants to stay with the advisor, the advisor has to tell them to change their contracts,” which is a problem, Mr. Tuorto said. “We need to find a way to let a client continue to work with an advisor if the client wants to do so.”