Whether or not you hold a security license, there are many aspects of compliance that every insurance agent must understand. For example, you must comply with your state’s advertising, disclosure, and suitability regulations in any seminar you conduct.

At the regulatory level, a seminar is typically considered to be any public gathering sponsored by a licensed agent — in other words, any gathering that is not a private meeting with an individual, couple, or family. Under this definition, the traditional seminar stretches to include free lunches, client appreciation events, dinners, and after-dinner conversations — and that’s just a starter list.

We’ve all seen the attempts to avoid seminar labels by calling it an “afternoon coffee” or “meet-and-greet.” But why bother? Compliance is relatively straightforward and, in the end, it is the best thing for your business and your clients.

NAFA has worked with many regulators on advertising and disclosure principles, and we have found one common thread: Most investigations into seminar selling begin with a complaint from a seminar attendee. Complaints cause regulators to examine all your seminar-related material and scripts, as well as any information you provided in follow-up appointments. For obvious reasons, investigations like these should be avoided: at least, they take up a lot of your time and, at most, they could end up costing you money and perhaps even your license and your business.

Read on for some quick tips that will help you stay compliant.

Just the facts

Advertising should give a factual, comprehensible, “whole-picture” basis for making a decision. Core practices during your seminar should include:

  • Make statements that are accurate and not misleading. Do not exaggerate benefits, interest rates, guarantees, or other features. Describe annuities as insurance contracts.
  • Never omit information that is important to the consumer.
  • Make your advertisements understandable. Define terms that the average person would not understand.
  • Ensure any information about specific products or insurers is complete and appropriate for the consumer’s decision-making process.
  • Provide a physical presentation that is clear and easy to read and understand. Do not obscure information (e.g., don’t put the interest rate in huge text and then add a hard-to-see line about surrender charges). Make sure each piece of information you provide is prominent and proximate to other information so as not to mislead an average client.

A fair marketplace

Advertising should always satisfy a consumer’s need for competitive and comparative information that is presented fairly. Information like this helps your clients make informed decisions. Do not disparage insurers, regulators, or other competitors. Do not make statements that unnecessarily inflame or imply the need for urgency, which could encourage consumers to make unsound decisions against their best interests. Introductory offers or specials should not imply limited availability or time periods for purchase unless that is a fact. Testimonials and third-party endorsements should be genuine, and you should disclose any financial interest or relationship — personal or professional — that the endorser has with you.

For a more detailed discussion on advertising best practices, check out NAFA’s Advertising Principles Paper.

Investment advice no-no’s

Because giving investment advice and insurance advice requires specific and separate licensing and oversight, it is important to understand what generally constitutes investment advice and what constitutes insurance advice. This month, we’ll give you general guidelines that insurance-only licensed producers may follow; next month, look for guidelines for securities-only licensees.

If you are only licensed to sell insurance and you do not hold a security license, your seminar guidelines are fairly straightforward:

  • Discuss the stock market in general terms, including market risks and recent or historic economic activities that are generally known to the public and regularly discussed in public media.
  • Talk about the expectations of the funds that might be considered to purchase the annuity or life insurance. Mention that annuity funds should provide one or more of these characteristics: protection from market risk; deferral of taxation; provision of a lifetime income stream; and a guaranteed interest rate. Also clarify that there should be other emergency funds available during the surrender period of the annuity or life insurance product, as well as where those funds should be located.
  • Review how to balance risk, diversification, etc. in a way that supports an insurance position within a consumer’s financial plan.
  • When discussing a financial plan or financial planning services, clearly identify yourself as an individual who holds a state insurance license, and mention that the license authorizes you to sell annuities or life insurance products.

Alternatively, there are a number of issues and activities in which you should not engage. Here is a partial list that will help you:

  1. Do not extensively discuss the risks of the stock market by using specific investments or investment types as examples.
  2. Do not discuss or evaluate specific securities or investment performance, or compare the actual securities or investment performance with other financial products, including annuity contracts or life insurance policies. (This includes sharing presentation tools, such as a chart depicting the performance of a specific mutual fund and an indexed annuity product — even if that annuity product is “unnamed.”)
  3. Do not recommend the liquidation of securities or investments that could be used to fund an annuity or life insurance product.
  4. Do not offer research, analysis, or recommendations regarding specific securities or investments.
  5. Do not use titles or terms that may indicate to the audience that you are licensed to provide investment advice.
  6. Do not use professional designations that are considered misleading by the insurance carriers you represent or your state’s insurance department or securities regulator.

In this monthly column, the National Association for Fixed Annuities (NAFA) will provide essential information about fixed annuity product features, regulation, tax issues, and industry news. We invite you, the reader, to send us any questions that you often hear — or that you may have yourself. Submit your questions to ASJeditor@AgentMedia.com with the subject line “Fixed Annuity FAQ” to have your problems answered here.

The National Association for Fixed Annuities (NAFA) is a national trade association exclusively dedicated to promoting the awareness and understanding of fixed annuities — including income, declared rate, market value adjusted, and indexed. You can follow NAFA on Twitter at www.twitter.com/nafausa.

For more exclusive annuities coverage, visit ASJ’s Annuity Resource Center.

Past annuity stories from ASJ:

A Sea Change for Variable Annuities: Investments Come to the Fore

Maximizing Your Options for Annuity Investments

Estate Planning with Annuities

Producers’ Choice: The Best Annuity Companies in the Industry

Annuity Facts: What You Need to Know to Sell Annuities in 2011