One of the most interesting stories this week came from Washington, where, during the NAIFA annual meeting, when representatives from NAIFA and the AALU squared off with the Consumers Federation Alliance while testifying before Congress on the merits and flaws of the fiduciary standard under development for broker-dealers.
For those of you not up on this issue, in a nutshell, the SEC is looking to impose the same fiduciary responsibility that securities dealers have on insurance agents who sell products with a securities tie to them, such as annuities. Given how much this industry is devoted to selling annuities these days, such a standard would be a big deal for a huge number of agents. But not all agents, it is interesting to note. Those who already have their securities license don’t see the fiduciary standard as such a bad thing, as they’re abiding by it already and see such a thing as a helpful way to separate wheat from chaff in the marketplace. We saw the same split over the SEC’s now-failed Rule 151A, too, so when discussing the fiduciary standard, it’s important we don’t treat it like a universal doomsday development for the entire industry, because it would not be.
That said, the fiduciary standard is really just a symptom of a much bigger, much more troubling tidal force, and that is increased federal regulation of all financial services, including insurance. Ask any consumer advocate and they will tell you – right or wrong – that life insurance is regulated with a very light touch indeed, and that recent efforts by Washington to apply stricter standards to the industry is probably long overdue. I am not sure I agree with that sentiment, but one cannot deny that our friends at the SEC are hellbent on considering any insurance product that has a tie to securities trading as a securities product itself. It was a battle it lost over Rule 151A, and who knows? It might lose over the fiduciary standard, too. But it might not. Regardless, the passage of Dodd-Frank has given federal regulators broad power indeed to apply whatever rules they think the financial arena needs but does not have. Go ask anybody working for Barney Frank’s office whether they intend to back off any time soon. Better take some heartburn medication before you do, though.
With that in mind, I think it is important that the industry conduct some serious risk management when it comes to staving off additional federal regulation. After all, much of the impetus for the fiduciary standard comes from a perception that the industry is by default up to no good, or at least, it is so shot through with shady operators with no rules to play by that bad things are sure to result. That strikes me as a flawed and ignorant view of the industry, but when has that ever stopped Washington before? Whether it’s fair or not, that is the standard Washington is playing by, and it will pay to be mindful of it and correct certain things before the folks on Capitol Hill decide to do it for you.
There are two things in specific I have in mind. And both are, in their way, reflections of the other. They are current marketing concepts that may very well be driving in business the industry needs. But if these get too much public exposure, they are primed for opportunistic regulators to seize upon them and use them as cause for further regulation.