NAIFA Seeks Investor Act Changes

BY ARTHUR D. POSTAL

An industry group is suggesting that the proposed Investor Protection Act be amended to allow broker-dealers and their representatives to offer a limited number of financial products without violating fiduciary standards proposed in the legislation.

The National Association of Insurance and Financial Advisers presented its proposal the staff of the House Financial Services Committee.

“The draft Investor Protection Act continues to be a critical issue for NAIFA, and we have provided a second round of comments to the FSC staff to address our concerns,” said Thomas Currey, NAIFA president.

“Our changes, if adopted, would preserve the ability of the middle and lower income markets to have access to and receive competent and professional services and financial products,” he said.

The changes would amend current language in the proposed legislation that insurance agents and brokers fear would impose a “one-size-fits-all” standard governing the sale of securities products.

Under the NAIFA proposal, the bill would add a safe-harbor provision that would allow broker-dealers and their registered representatives to offer a limited number of products and not be held in violation of the fiduciary standard currently proposed in the legislation.

NAIFA also suggests other technical changes in the proposed legislation, according to Currey.

“The key here is preserving a variety of competitive cost-effective compensation arrangements, including the payment of commissions, that allow small- and middle-income investors to access suitable financial products and professional service to assist them in the pursuit of their financial objectives and financial independence,” Currey said.

Currey said NAIFA is concerned about certain references in the bill that imply financial professionals are generally interested in steering clients to products that will pay the highest commission, without regard to what is in the client’s best interest.

“This issue is a real source of contention with our membership,” he said.

He said professional advisors consider various factors before recommending a product.

“These include suitability-a rigorous standard that includes a questionnaire to assess the clients’ income, risk tolerance, age, tax status, liquidity needs, financial time horizon, investment objectives etc.-surrender charges, investment experience of clients, price of product relative to benefit, internal expense structure, carrier rating, policy coverage features, and the historic service standards of the company underwriting the product,” Currey said. “We believe any post-transaction analysis by a regulator to determine if an advisor acted in their client’s best interest should take all of these factors into consideration.”

Rep. Barney Frank, D-Mass., chairman of the committee, announced Thursday that the panel would move on the bill next week.