The opportunity to become a registered investment advisor (RIA) has been heavily promoted to insurance agents in recent months.

But for unregistered insurance agents who sell fixed annuities, the first question should not be whether to become an RIA. Two other issues need airing first: 1) Is the agent currently giving investment advice? and 2) what should unregistered agents do about giving advice, given that the Financial Industry Regulatory Authority and the Securities and Exchange Commission prohibit them from doing so? (See sidebar.)

It is far better for the unregistered agent to deal with the problem as an opportunity to give investment advice legally.

For a variety of reasons, the future is in advice. Most agents are able to sell pretty much the same array of fixed annuity products. Offering good investment advice will enable them to provide more value and differentiate themselves from the competition.

The market needs and wants sound advice much more than any particular fixed annuity, no matter how good a product it may be. This is particularly true of aging baby boomers, the most promising market for fixed annuities. It also tends to be true for big cases in general. And insurance agents who specialize in fixed annuities need these big cases to make a decent living because there is a long-term trend toward lower commissions on these products.

There are several legal ways to build a practice by providing and/or implementing investment advice.

Unregistered annuity specialists could choose to affiliate with someone who is registered. In this case, the agent would be responsible for selecting the best products for client needs as part of the process of implementing a colleague’s recommendations. Or they can choose to become registered themselves, as broker-dealer representatives or investment advisors.

The choice of how best to take advantage of the opportunity to provide advice should be approached as a business decision, not in terms of avoiding oversight.

In the registered world, financial product sales must, at the very least, be suitable for the client. Investment advisors are held to an even higher standard. As fiduciaries, sales must be in the best interests of the client. Oversight involves the expenditure of time and money, as well as assuming considerable liability. Representatives of broker-dealers and registered investment advisory firms pay part of their commissions and/or fees to cover these expenses. Agents who establish their own RIA firm have to assume the cost and liability directly.

The business decision is simply this: How does the agent wish to be compensated?

Those who want to expand their practices to include asset management on a fee basis should become registered as investment advisors. Those who do not should find a compatible broker-dealer and obtain a Series 6 and/or Series 7 license.

By the way, these are not mutually exclusive categories. It is possible (and actually desirable, for the sake of maximum flexibility) to be an insurance agent, a registered rep and a registered investment advisor (or RIA rep) simultaneously.

The most important thing is to avoid providing investment advice without a license to do so. The future of the agent and of the fixed annuity industry as a whole depends on this.

Jeremy Alexander is CEO of Beacon Research, a fixed annuity data source and application service provider in Evanston, Ill. His e-mail address is Jeremy@beaconresearch.net.