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NAIC To Start Review Of Designations

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The National Association of Insurance Commissioners will begin looking into the use of designations that lull seniors into trusting their financial decisions to advisors who are not qualified.

The issue follows publicity surrounding the value of designations and their use, particularly in relation to the sale of retirement products through promotional free lunch seminars.

The U.S. Senate Special Committee on Aging held a hearing in September on the issue. In a letter to the NAIC dated Oct. 3, Sen. Herb Kohl, D-Wis., the committee’s chairman, urged state insurance regulators to “undertake a comprehensive review of its current suitability standards” and to work with states to adopt and enforce those standards.

During a recent conference call of the NAIC Life and Annuities “A” Committee, Julie McPeak, chair and Kentucky executive director of the office of insurance, said both insurance and securities regulators are discovering are that some of these designations are easily obtainable and can be purchased for as little as $149.

Existing state laws protect against use of fabricated designations, she noted, but what was not anticipated is the use of designations that exist but offer little value in making the advisor more knowledgeable for the consumer.

She suggested possibly creating both a consumer and producer alert, and then after regulators have thought about the issue, possibly creating a model to bring to states.

NAIC President-elect and Kansas Commissioner Sandy Praeger said the Kansas insurance department and securities division had sent a joint letter to producers in the state on the issue.

The letter raised concern that the use of a Certified Senior Advisor designation provided by the Society of Certified Senior Advisors “may be used in a misleading manner.

“It is important to understand that the CSA is not a substitute for any license or regulatory requirement,” the letter said.

The letter noted that starting Jan. 1, 2008, a disclosure statement has to be used by those using the CSA designation before the completion of a transaction. The statement notes that the CSA designation alone does not imply expertise and that a consumer should ask for a financial advisor’s other licenses and designations.

Praeger said financial advisors must stay within the limits of the authority their designations offer and that at times this can be a fine line. For instance, she said, if an insurance agent is selling an indexed annuity and is making a comparison with a variable annuity product, then it is conceivable that advice may be given that would require a securities license.

Both Gary Sanders, senior counsel for law and government relations with the National Association of Insurance and Financial Advisors, and Bill Newton, executive director with the Florida Consumer Action Network, Tampa, Fla., expressed support for the planned effort.

Sanders said NAIFA supports enacting the Suitability in Annuity Transactions model in all states and has been working with the American Council of Life Insurers, Washington, on the designation issue. He says the current regulation offers enforcement measures after an offence has been committed and that front-end protections are needed.