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Regulation and Compliance > Federal Regulation > SEC

The sky is (not) falling

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With our editor, Daniel Williams, still holding down the fort on the last day of MDRT’s big conference in Toronto, let me, Associate Editor Andy Stonehouse, step in for a moment and get you up to date on today’s flurry of activity related to the possible regulation of equity indexed annuities.

Advisors have been burning up the phone lines today. And that’s because of news that the U.S. Securities and Exchange Commission is considering rulings which would label fixed and equity indexed annuities as registered securities – a move which could drastically change the way many of you do business. Securities licensing might be the norm.

The emphasis at this point, however, is on “considering.” SEC rulings did not, miraculously, change or come into effect overnight – this is Washington, we must remember – but the potential for those previously unlicensed products to suddenly take on a new and much more regulated status is definitely a possibility.

Before everyone goes into panic mode, let’s look at some of the facts – and the timelines involved.

All of the hubbub stems from Wednesday’s SEC hearing, where the commissioners, in a 3-0 vote, proposed a new rule – known as 151A – which would move EIAs into the securities realm.

The new ruling would use two benchmark tests to determine if a financial product is in fact a security, with some arguably vague language at their core:

  1. “The amounts payable are calculated in whole or in part by reference to a security or a group of securities or an index, and
  2. “The amounts payable by the insurer are more likely than not to exceed the amounts guaranteed under the contract.”

In news reports on the hearing, SEC chairman Christopher Cox says his motivation for pushing the changes go back to his frequently-made assertions that the products are being inappropriately sold through abusive sales practices.

SEC commissioner Paul Atkins went even further, saying that sales are often made with no eye to suitability: “A few rotten apples have given a bad name to the industry as a whole.”

What’s the process from here, and what can you do about it? The language of the proposed rule will be opened for public comment, until Sept. 10 – followed by a more deliberations and a vote.

Your best resource to monitor those proceedings is the SEC itself: visit, where news, timing, comments and the full text of the proposed ruling can be found.

Should the rulings be adopted, there would be a one-year period before compliance – and new securities licensing – would come into effect.

As we say, the changes are Washington talk at this point. But we would encourage you to do the following as the issue is definitely on the table, and part of a looming, industry-wide move towards potential regulation.

  • Stay informed. A good source, set to go live in the next day or so, is, a neutral site set up to explain the changes, offer avenues for commentary and help guide advisors in the next steps. NAFA is also an excellent resource; they’ve planned their own site,, to discuss the issue and provide solutions and strategies.
  • Consider the kind of business you do want to pursue, should changes go ahead. Planning for the future will help you keep one step ahead.

And … please feel free to use our own Web site as a forum to discuss your concerns, your plans and your hopes as changes like these and others continue to take place in the industry. We welcome your comments and hope we can reflect the rather significant changes taking place.


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