OK, so your head is already spinning over compliance. So what’s new? How about a new set of compliance rules that will make your job even more challenging? Don’t worry, there’s still hope-you just need to follow six important rules to stay out of the compliance spotlight.
If the wildly capricious behavior of the financial markets of late weren’t enough to make an advisor’s head spin, then the ever-shifting and increasingly imposing regulatory landscape certainly will. While the pending overhaul of the financial regulatory system casts an ominous shadow on that landscape, there are plenty of other, narrower compliance and regulatory issues looming for advisors and insurance agents, particularly those who are active in the annuity market. For those involved in fixed index annuities, for instance, there’s the matter of how the Securities and Exchange Commission will handle its controversial revisions to Rule 151A, which would classify FIAs as securities, thus requiring a securities license of anyone who sells them.
On the variable annuity side, meanwhile, there’s the ongoing campaign by FINRA and other regulators to crack down on unsuitable sales, both with new contractholders and with existing ones who exchange one contract for another via the 1035 process.
Given the unsettled regulatory situation, it’s not getting any easier for advisors who deal in annuities to serve their clients while also meeting their mounting compliance responsibilities, contends Steve Bailey, a registered investment rep at HB Financial Resources, the Charlotte, N.C., firm he founded. “Right now, we are over-complianced. I’m concerned that will hurt our ability to provide creative, custom solutions for clients at a time when they need them most. Basically, we’ll just be order-takers, not true advisors.”
Amid so much regulatory flux, one thing is certain: Advisors who take a proactive approach to compliance, and who demonstrate a commitment to meeting new requirements, even when it means allocating more of their time and resources to doing so, will be best positioned to thrive once the dust settles.
What Your Peers Are Reading
“You can’t hide from this [regulatory] stuff, whether it’s with variable annuities or indexed products,” says Jason Lea, senior vice president at Broker’s Service Marketing Group, an independent insurance and annuity wholesaler and marketing firm based in Providence, R.I. “The [federal] government is demonstrating that it is of the belief that more oversight [of financial markets and products] is better.”
What of 151A?
Any discussion of regulatory issues surrounding fixed index annuities usually starts and ends with Rule 151A–in particular, whether the SEC ultimately will decide to treat FIAs as securities.
Back in 2008, the commission stated its intent to treat FIAs as securities starting in January 2011, but that ruling was put into limbo by a court decision late last year. The SEC has since delayed implementation of the new policy until at least 2013, pending further review. Meanwhile, legislation introduced and still pending in both houses of the U.S. Congress would codify that FIAs are insurance products, not securities, thereby preventing the SEC from making a move to regulate them.
How will the case shake out? “Anyone who tells you they know the answer to that is crazy,” says Lea.
The 151A delay represents a reprieve for index annuity producers, who under the new SEC policy, would have been required to get their Series 6 and 63 licenses to sell the product if they didn’t have them already.