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Industry Spotlight > Broker Dealers

Better Communication May Mean Better Suitability

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Insurers and broker-dealers need to communicate more to better police against unsuitable sales transactions.

That was the message of speakers on a panel at the American Council of Life Insurers annual meeting in Orlando.

John Doscher, vice president of compliance for Prudential Financial, Newark, N.J., said that while insurers have an obligation to ensure that the sales of their products are suitable, and that while they can contract that work out to a third party, they should be able to show that the policing is being done. When state regulators show up, he said, “you don’t want them to see that you pushed it off onto the broker-dealers,” he said.

However, Mr. Doscher said that life insurance companies should speak to those doing the selling when they see what could be a potential problem.

“When you find a pattern or trend” which could indicate sales that are unsuitable, he said, “you have to follow up.”

Insurers, he noted, only see the business from a broker-dealer that deals with their products, and Mr. Doscher cautioned insurance company executives from assuming that pattern they see with their products is necessarily a problem.

“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.”


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