Recent developments are again raising the issue of harmonization of the duties of broker-dealers that sell insurance products and the duties of investment advisers who consult on income planning.
As often is the case in the world of insurance products, no single concept stands totally alone; each implicates other concepts and developments that are the focus. Income planning is a prime example of this convergence of issues.
In all sales of insurance products and securities, the product itself is a key element, but product selection is grounded in the process of assessing the suitability of the product to the needs, purposes and capacity of the purchaser.
Product and process give rise to differing considerations, and, at least under current law, different regulation.
Federal securities regulation and state insurance regulation have not come to grips with this duality and differing emphasis. This is evidenced by several developments, the most significant being the reemergence of the issue of harmonization of the standards for B-D producers and investment advisers following the Goldman Sachs inquiry.
To recap the meaning of harmonization: Its core, as relevant here, is imposing, on B-Ds selling insurance products, a fiduciary duty equivalent to that currently imposed on investment advisers in the process of income planning. Fiduciary duty involves the prohibition of conflicts of interest, one of which is how compensation is paid.
One of the key concerns related to insurance product sales, as voiced by senior executives of the Financial Industry Regulatory Authority, Washington, D.C., is failure to disclose the conflicts of interest arising from receipt of marketing fees.
But FINRA’s doesn’t prohibit the receipt of compensation that could sway the B-D’s efforts and recommendations.