A regulation proposed by the Financial Industry Regulatory Authority could expand suitability mandates so broadly that they would cover all investment product recommendations.

The National Association of Fixed Annuities, Milwaukee, has voiced that concern in a member alert.

NAFA fears the proposed regulation could apply to any service or strategy used in connection with a firm’s business, regardless of whether the service or strategy involves securities.

FINRA says the proposal, Regulatory Notice 09-25, Proposed Consolidated FINRA Rules Governing Suitability and Know-Your-Customer Obligations, is part of efforts to develop a new consolidated FINRA rulebook.

The proposal comment period ends June 29.

NAFA sees the proposal as “a clear attempt to take control – read collect fees – on all product recommendations,” including recommendations involving life insurance, long term care insurance, health insurance, property-casualty insurance, savings accounts and fixed annuities, NAFA officials say.

“And, it isn’t just product recommendations,” NAFA officials say, noting the proposed regulation also would apply to service and strategies.

“So a suggestion of, say, where to bank, conceivably might require suitability review,” NAFA officials warn.

NAFA officials say they are concerned that the proposed regulation “is just the first step in an obvious strategy to control all activities at the broker dealer level.”

“FINRA appears to be oblivious to the real problems of asking a broker-dealer to ensure suitability of a long term care product,” NAFA officials write. “Will they ensure general product knowledge through additional training requirements? Will they ensure specific product knowledge through annual certification testing? or will they require licensing (life, LTC, health etc.)?”

Coordination of FINRA rules with the requirements of state insurance and securities regulators also could be a problem, NAFA officials write.

“Dual regulation, especially when the second is one gained by stealth without legitimate authorization, is a recipe for confusion and expense that will ultimately lead to harmful consequences for the consumer,” NAFA officials contend.