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Regulation and Compliance > Federal Regulation > SEC

NAIFA: The Suitability Standard Works

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WASHINGTON BUREAU – The idea that a uniform fiduciary standard would provide better protection for consumers is a myth, according to the National Association of Insurance and Financial Advisors (NAIFA).

Broker groups, investment advisor groups, lawmakers and consumer groups such as the Consumer Federation of America (CFA), Washington, are continuing to send the U.S. Securities and Exchange Commission (SEC) letters encouraging it to apply a fiduciary standard to brokers as well as to advisors, or to leave the rules as they are now and continue to apply a suitability standard to brokers.

A fiduciary standard requires a financial professional to put the client’s interests first.

A suitability standard requires a financial professional to check to see whether a product sold to a consumer appears to suit the needs of that consumer.

A provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act explicitly gives the SEC the authority to write a standard-of-care regulation. Uniform standard opponents have said the SEC has provided no evidence supporting the idea that a uniform standard is necessary, and they say a uniform standard would increase brokers’ – and consumers’ – costs.

The CFA has fired back with a letter saying the uniform standard opponents have provided no evidence that a uniform standard would increase costs.

Terry Headley, president of NAIFA, Falls Church, Va., says the suitability standard now used by insurance agents who sell SEC-regulated investment products, such as variable annuities, is “robust and heavily enforced.”

“A suitability standard is rules based and objective, as opposed to fiduciary, which is process-oriented and subjective,” Headley says.

Most of NAIFA’s members are community-based small business owners, many working as sole practitioners, who provide affordable insurance and financial services to the middle-market, Headley says.

As registered representatives of broker-dealers, “NAIFA members serve Main Street investors and are subject to an annual compliance review by their broker-dealer in addition to the daily compliance procedures their broker-dealer enforces,” Headley says.

“Procedures are in place to ensure that every product available to consumers is appropriate for their needs and circumstances,” Headley says.

Variable annuity products are dually regulated by the state insurance departments and the Financial Industry Regulatory Authority (FINRA), Headley says.

“NAIFA has been supportive of the National Association of Insurance Commissioner’s suitability in annuity transactions and annuity disclosure model regulations, and continues to work toward adoption of these models in all states,” Headley says.

When NAIFA commissioned its members, the members said they think a uniform standard would force them to raise the cost of their services or leave the business, Headley says.

Republicans on the Senate Banking, Housing and Urban Affairs Committee also are weighing in on the issue.

In a May 4 letter, they asked the inspectors’ general of the SEC and other agencies involved with implementing the Dodd-Frank Act to review the analyses conducted by the agencies in connection with Dodd-Frank rulemaking.

“Our request arises from our concern that regulatory agencies are conducting rulemakings to implement Dodd-Frank without adequately considering the costs and benefits of their rules and the effects those rules could have on the economy,” the lawmakers say in the letter.

Other fiduciary standard coverage from National Underwriter Life & Health:


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