Discussion is stirring in Congress over whether an Obama administration proposal to have brokers who provide investment advice held to a fiduciary standard, not just the current suitability standard.
Since the proposal is focused on securities brokers, a natural question to ask is, why should insurance practitioners care?
The answer is, this legislation could affect them too; 1) if they also hold securities licenses and provide investment advice; and/or 2) if the standards are applied to brokers but later migrate over to insurance specialists who do planning too.
Besides, the proposal is part of the massive financial overhaul now before Congress, an overall that could affect all financial sectors, including insurance.
A little background. The fiduciary standard is widely viewed as more stringent than the suitability standard. As indicated in the Investment Advisers Act of 1940, advisers who provide investment advice must put the client’s interests first. (This applies to those who advise others, either directly or through publications or writings, regarding investments, as a regular part of their work.)
Registered Investment Advisers and financial planners, among others, are held to the fiduciary standard, according to the Securities and Exchange Commission.
As for the suitability standard, it focuses on sales conduct. It requires securities reps to sell the most appropriate product for the client. Any advice they provide must be “solely incidental” to this work. Investment brokers are currently held to this standard.
(Incidentally, insurance sales agents are also held to suitability standards, but as relates to insurance products–for instance, the Suitability in Annuity Transactions Model Regulation of the National Association of Insurance Commissioners, if adopted by the agents’ state.)
The proposal to apply the fiduciary standard to brokers appears in the Treasury Department’s proposed Investor Protection Act of 2009. (See www.treas.gov.) This legislation would amend the Investment Advisers Act to require all brokers, dealers, and investment advisers who provide investment advice about securities to retail customers or clients “to act solely in the interest of the customer or client without regard to the financial or other interest of the broker, dealer, or investment adviser providing the advice.”