Congressional committees have proposed changes in suitability standards that, if sustained, could pose a crippling blow to life insurance agents who sell a limited number of investment products.
However, final action on sweeping financial services reform legislation now being considered by Congress is not likely to occur until the first quarter of next year.
On Nov. 10, Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, and several of his Democratic colleagues, rolled out legislation that would impose a sweeping fiduciary standard on the sale of securities products by insurance agents.
Dodd said he plans to update his discussion draft based on comments, and hopes to have his committee start to mark up his bill on Nov. 17.
According to industry officials, the Dodd bill would also arm the SEC with additional authority to impose stronger consumer protections on sales of investment products to seniors, including insurance products and annuities.
Days earlier, the House Financial Services Committee reported legislation to the House floor by a near party-line vote that agents’ groups say gives the Securities and Exchange Commission the authority to prohibit or restrict any “compensation schemes that are deemed contrary to the public interest.”
The legislation, H.R. 3817, the Investor Protection Act, also contains a provision that directs the SEC to require broker-dealers, their registered representatives, and investment advisors to act in the best interest of a client “without regard to financial or other interests of the broker, dealer, or investment advisor providing the advice,” say officials of the National Association of Insurance and Financial Advisors.
According to Rep. Barney Frank, D-Mass., chairman of the House FSC, floor action on the Investor Protection Act as well as other legislation reforming financial services regulation is not likely until the first week of December.
Under the Dodd bill’s provisions, state securities regulators and state insurance regulators would also be provided with incentives to act to further protect seniors who purchase investment products.
These provisions include a requirement that the SEC police the use of misleading professional designations in the sale of investment products for seniors.
This provision, Sec. 989A of Dodd’s “Restoring American Financial Stability Act,” also proposes to provide grants to states to adopt strong consumer protection and suitability mandates on the sale of annuities and other investment products.
According to Sarah Spear, Association for Advanced Life Underwriting director of policy and public affairs, Sec. 913 of the Dodd bill would require virtually every broker-dealer to register as an investment advisor and adhere to a fiduciary standard.