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Retirement Planning > Social Security

The perils of giving investment advice without a license

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If you’re not licensed to sell investments, think twice about advising a client to cash out a security in order to buy an index annuity or other insurance product. That’s because state securities regulators are more frequently sanctioning insurance agents for acting as unlicensed investment advisors.

Recent regulatory actions are cases in point:

  • The Massachusetts Securities Division issued a consent order to Investors Capital Corp. for allegedly allowing its reps to use unregistered investment advisor services to sell indexed annuities.
  • The Tennessee Securities Division in 2005 took action against financial professionals who recommended liquidating securities positions and using the proceeds to purchase indexed annuities or other products.
  • Last year, the Texas State Securities Board warned the public against unlicensed individuals selling securities.

Other states that have reportedly sanctioned agents for providing investment advice without a license include Rhode Island, Mississippi, Nebraska and Washington.

Industry observers suggest that state securities regulators aren’t going after insurance products per se, but rather are concerned about the market conduct of insurance professionals who hold themselves out as investment advisors while selling annuities.

Red flag? If you aren’t properly licensed as an investment advisor representative and are recommending clients use securities proceeds to fund any insurance product, stop immediately. You’re running a big risk in today’s regulatory environment.

What “red flags” are affecting your business? Send your comments to the National Ethics Bureau at [email protected]


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