A broker-dealer should think about execution, supervision and compensation when deciding whether securities laws apply to a life settlement transaction.
Cecilia Jordana, senior regulation specialist with the National Association of Securities Dealers, Washington, gave that advice here this week during a panel discussion on securities regulation of life settlements at a conference organized by the Life Insurance Settlement Association, Orlando, Fla.
If, for example, a registered rep works with a consumer who sells a life insurance policy through a life settlement and then buys a security, that transaction would fall under the jurisdiction of securities regulators, Jordana said.
The rep would have to have a broker-dealer oversee the transaction directly, not simply notify the broker-dealer about an outside transaction, Jordana said.
Even if a registered rep simply helps with a life settlement transaction, the role the rep plays in the purchase, sale or exchange could make the rep subject to securities law, Jordana said.
Michael Brennan, chief compliance officer at Woodbury Financial Services, Woodbury, Minn., a unit of Hartford Financial Services Group Inc., Simsbury, Conn., said making distinctions between life settlements that are and are not securities is difficult for broker-dealers.
For internal purposes, Woodbury assumes that all of the transactions are subject to securities compliance requirements, even if a provider’s counsel states in a letter that a particular life settlement is not a security, Brennan said.
Woodbury requires due diligence evaluations of life settlement providers and brokers, and it requires compensation information for both the rep and the broker-dealer.
Woodbury also requires errors and omissions coverage through the reps themselves, as well as a description of the insured’s insurance needs and a review by both the rep and the client to verify that any policy being sold is no longer needed.