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Regulation and Compliance > Federal Regulation > SEC

SEC 151A: The final countdown?

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With just over a year until the SEC’s controversial 151A ruling is set to go into law, legislators and activists have moved their anti-151A lobbying efforts into high gear. In the fifth installment of our ongoing coverage of the 151A issue, we take a look at the latest moves in the fight, and some experts’ projections for developments in 2010.

While this year’s cavalcade of financial failures and stunning regulatory blunders (the Madoff scam, for instance) have given the SEC some more pressing issues to deal with, is the looming 151A change still a steadfast reality for our industry?

SEC Ruling 151A, which would re-designate fixed indexed annuities as securities and require a substantial retooling of the sales, marketing and distribution of FIA products, is still set to go into effect on January 12, 2011. Since the first discussion on the proposed ruling emerged in the summer of 2008 and framework legislation was launched a year ago, the issue has become a key rallying point for both those who make their living creating and selling the products, as well as state legislators who see it as further evidence of a turf war for control of the insurance industry.

This summer, the U.S. Court of Appeals in Washington, D.C. provided some credence to members of an anti-151A lawsuit by calling the initial ruling “flawed” and “arbitrary and capricious,” handing the proposed regulation back to the SEC for a remand.

Since then, several key state insurance commissioners have maintained constant, interactive contact with the SEC and its still relatively new Obama Administration-era chairman, Mary Schapiro, and say that they’ve been pleased by the extent of public discourse and discussion on 151A – a regulation created and pushed forward, as many have noted, in the waning last hours of the Bush presidency.

Sean Dilweg, Wisconsin’s Commissioner of Insurance, says he and other vocal state-level reps (including Iowa’s Susan Voss) in the NAIC have been working closely with Schapiro’s staff. He says he’s seen considerable effort on the SEC’s part to get more contributions on the issue from external partners.

“She’s set up a system to reach out to interested groups for more input,” Dilweg says. “But it’s an unusual issue to deal with. The insurance industry really doesn’t have a unified approach to the issue, with sellers of different products taking different sides, so it’s hard to get a unified approach.”

Instead, Dilweg says that he and the NAIC are hoping that the organization’s draft suitability supervision and training model, which would place more responsibility for suitable sales on companies and the financial advisors who sell them, might help negate the entire need for the 151A legislation. A pilot program is underway in Iowa; Dilweg says the objective is to continue to maintain the autonomy of the state level oversight of financial products. “We want to demonstrate to the SEC that they do not need to wade into the issue any further.”

A lesson in civics
151A has also served as an important civics lesson for a number of people directly involved in the FIA business, who say their ongoing, hands-on efforts to blitz their senators and congressmen has opened their eyes to the way that Washington works.

Last month, members of the Coalition for Indexed Products (a grassroots organization composed of marketing organizations, insurance companies and individual producers) continued its anti-151A push with a “National Call-In Day,” bombarding federal representatives with a further cavalcade of appeals to quash the legislation. Congressmen and senators are being asked to sign their support for Meeks/Price House Bill 2733 and Senate Bill 1389, both of which call for overturning 151A and have picked up significant support over the year.

Andrew Unkefer, president and CEO of Glendale, Ariz.-based Unkefer and Associates, Inc., has spent much of the last year as a behind-the-scenes organizer for the Coalition’s various campaigns, including Nov. 10′s Call-In Day and an activist Web site, Unkefer says the efforts, which have also included two industry lobbying missions to Washington, D.C. (the most recent on July 29), gave him a new perspective on the political process.

“When you spend enough time trying to be in touch with senators and congressmen, you pretty quickly see the importance of contacts and influence,” Unkefer says. “They do listen to you, if you go through the right process and channels. Even this late in the game, it’s been good to see that the excitement is definitely higher and that there’s more positive energy. We still feel we can get this done and keep the movement and the momentum alive.”

A sales call of a different kind
Unkefer says something as simple as learning about effective methods of communication (in this instance, the Coalition has learned that faxed letters of protest arrive and are instantly inventoried and recorded by staffers at each senator or congressman’s office, as opposed to mailed submissions) has been just as important as making personal contacts and pressing the flesh.

To that end, the Coalition continues to encourage the involvement of individual advisors who work with FIAs, writing letters and calling and contacting the local and national offices of their Washington representatives. Letters from satisfied clients, many of whom have found relatively stable financial security in FIAs during the last year, can also make a strong case for the validity of the product.

Many companies have also gotten on the bandwagon. Forty members of Houston-based InsurMark hit the streets of their city Oct. 16, meeting with staff from the offices of Senators John Cornyn and Kay Bailey Hutchinson, as well as Congressmen Al Green and Sheila Jackson Lee.

“We certainly got a positive response from everyone we talked to,” says Carolyn Luby, InsurMark president. “I hope all our independent insurance professionals care enough to do their part in this fight for our livelihoods.”

The inside track
As those most likely to be directly financially impacted by 151A continue their grassroots efforts, one insurance commissions insider says he’s taking a broader and more positive view of the proceedings. Jim Mumford, first deputy insurance commissioner for the Iowa Insurance Division, says he’s been encouraged by the contact he and Iowa chief commissioner Susan Voss have had with the SEC’s Susan Nash, one of the key staffers involved in crafting and developing 151A. From his perspective, the regulation doesn’t seem quite as set in stone.

“We’ve been trying to give them information, and I think we’ve been effective in showing that the NAIC suitability model harmonizes things,” he says. “It’s clear that competition in the industry would decrease if FIAs became annuities, but … only 49 companies sell the product at present, so you have to take all of this grassroots stuff with a grain of salt.”

Ultimately, Mumford says 151A may simply be a victim of the more challenging financial era we live in. “Congress has so many things on its plate right now that (151A) is such a small, small issue to them. We’d simply like to continue our discussion with the SEC; they’ve been very open to us. They don’t see it as a turf battle any more. The SEC and FINRA have a different view than we do, but it’s no longer centered on market conduct. We’re trying to solve those issues.”


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