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Regulation and Compliance > Federal Regulation > SEC

SEC 151 faces a double-whammy in Washington

By Andy Stonehouse

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After two years of debate, political action and some serious soul-searching on behalf of advisors across the country, the controversial SEC 151A ruling was given the one-two punch in separate moves in the nation’s capital.

On July 12, a federal appeals court announced that it had opted to side with plaintiffs who had launched a lawsuit questioning the validity of 151A and vacate the ruling entirely. 151A would have required federal oversight of the sale of fixed index annuities (also known as equity indexed annuities) and threatened to considerably transform the business of agents, FMOs and carriers nationwide.

The three-judge panel at the D.C. Circuit Court of Appeals, hearing the case of American Equity vs SEC, dumped the SEC’s current attempts to regulate the product, although the panel fully admitted that the SEC could attempt to re-float similar legislation in a new form.

“We grant the petitions insofar as they assert the SEC failed properly to consider the effect
of the rule upon efficiency, competition and capital formation,” the panel wrote.”We therefore order that Rule 151A be vacated.” The second and final nail in the coffin, 151A foes hope, is the final Senate adoption of the Wall Street Reform and Consumer Protection Act, which includes an amendment to permanently designate FIAs as state-regulated products.

The 151A regulation could be undone as part the amendment floated by Democratic Senator Tom Harkin of Iowa, chairman of the Senate Committee on Health, Education, Labor and Pensions, provided that state insurance departments unanimously pass and adhere to NAIC standards on the sale of FIAs. Ten states have yet to do so.

The larger financial reform act, H.R. 4173, was endorsed by House and Senate committees in late June but was held up for final vote in the Senate and approval by President Obama. The death of a key supporter, Democratic Senator Robert Byrd, also helped delay adoption; at magazine press time in mid-July, the Senate vote was still looming.

Whatever the case, parties who have been working to overturn 151A since its appearance nearly two years ago say they are hopeful that both of the summer’s legal developments will, for once and for all, do away with 151A. Andy Unkefer, president and CEO of Arizona’s Unkefer and Associates and a key player in the anti-151A battle, says the two political developments should serve to end 151A forever.

“Now that the Court of Appeals has vacated SEC Rule 151a, you might think the battle is over,” he says. “However, the SEC could attempt to create another, more narrowly defined rule and still capture the product as a registered security. This is why passing the Harkin Amendment is still mission-critical to the insurance industry. The Harkin Amendment clarifies once and for all that Fixed Indexed Annuities are not a security.

“Also, I believe that the Court’s action is directly related to the fact that the Harkin Amendment was approved by the House and Senate Conference Committees,” he adds. “It is clear that our legislation will become law. The decision of the Court came right on the heels of that work on Capitol Hill. I am certain that this tipped the scales in our favor.”

Unkefer has been heavily involved in the Coalition for Indexed Products, which hosted a popular anti-151A website and later organized several rounds of lobbying fly-ins in Washington D.C., where producers and industry representatives met with their elected officials.

He admits that the group’s most important move on the legislative end was to take the advice of several professional lobbyists outside of the industry and to figure out the most direct path to power–other anti-151A efforts such as the Meeks/Price bill had been good first efforts, but Harkin was in a position to actually get something accomplished, he notes. Coupled with the outcome of the lawsuits, the efforts seem to have worked.

Sheryl Moore, annuity industry advocate and president of Advantage Group Associates, says she also hopes that the passage of the Wall Street Reform act will bring some much-desired closure to the issue.
“This legislative strategy has always been Plan A and if we want to ensure that indexed annuities will be regulated as fixed insurance product indefinitely, we need to continue that strategy,” she says.

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