Podcast Center
Video Center
Webcasts
Resource Center
Events
October 01, 2007 at 08:00 PM
In the early days of the insurance industry, before NASD Notice 05-50 was released on Aug. 8, 2005, things were radically different than they are today. Since then, the financial services world has changed dramatically. Compliance, once an issue that mostly concerned only NASD-registered representatives, is now of paramount concern to all industry professionals. As an agent, you must now jump through some pretty big hoops — and when you fail to follow the rules, you may be badly burned. Consider the following case studies:
o In a suit filed against two insurance agents in Massachusetts, the state’s attorney general charged that the pair provided unlicensed investment advice to two elderly clients. The suit also alleges that while helping these clients transfer assets from mutual funds into fixed annuities, the advisors tacitly provided investment advice without being properly licensed to do so.
o The SEC recently overturned the so-called “Merrill Rule.” That rule allowed NASD registered reps to open “wrap accounts” and charge fees based on the value of the account’s assets, as do Registered Investment Advisors (or Investment Advisory Reps under a corporate RIA). Although the rule change is being repealed, it has at least temporarily stopped non-RIAs from charging fees. Broker-dealers with wrap account programs are also closing the doors on the establishment of all new accounts.
o NASD 05-50 strongly suggested that broker-dealers should supervise the sale of index annuities, as the NASD considers these fixed insurance products to be securities. This effectively put the brakes on many index annuity sales.
o Most recently, a May 30, 2007 Wall Street Journal article quoted Joseph Borg of the Alabama Securities Division and president of the North American Securities Administrators Association (NASAA). He said that the initial probes of “free dinner and lunch” seminars resulted in 26 actions against reps who allegedly provided unregistered investment advice or misleading information to seminar attendees. Borg went on to say that they are now expanding the pilot probe beyond the initial seven test states and that he hopes to soon have investigations under way in all 50 states.
o In an address to the Society of Certified Senior Advisors in May 2007, Borg said that his group classifies index annuities as securities, even though these annuities are not classified as such by the SEC. The NASAA took the position that because assets in index annuities may be lost because of a surrender charge, they are therefore securities. While Borg admitted that they do not have jurisdiction to regulate the products, they do have jurisdiction over how they are marketed.
How does this affect you?
These examples help show how your practices are being scrutinized. If you hold lunch or dinner seminars, you should assume that someone from the state securities division will be there, listening and taking notes on everything you say. You should also assume that someone from that division will set an appointment to hear what you say during your appointment process.
If you say the word “investment” and you are not a Registered Investment Advisor (or IAR), you’re sunk. But there is a simple solution to this situation: Become a Registered Investment Advisor, and then integrate investment advice into your practice. (See sidebar for more information.)
