The National Association of Insurance Commissions (NAIC) released updated data on Dec. 26, 2011 (see chart below), which shows that fixed annuity complaints to be very low and decreased even further in 2011.
This is good news for sellers of fixed annuities. Some felt that issues and concerns were put to rest with the defeat of SEC Rule 151A, but we must remain vigilant with regulators and legislators, particularly with the broad and often vague requirements of Dodd-Frank. The National Association for Fixed Annuities (NAFA) has been and will continue to be a strong advocate for fixed annuities, both in Washington, D.C. and on the state level. Here is a brief update on current federal activities that could impact fixed annuities.
Source of Funds
The SEC and FINRA continue to make public statements about regulating the movement of money that involves a security. At a recent meeting NAFA attended an SEC staff person said that “if a security is involved on either side of the sale, we will be looking at it.” While there is no existing federal authority permitting this oversight, we must watch carefully and act when necessary to ensure oversight of the sale of fixed annuities remains the job of the state insurance departments.
DOL Fiduciary Standard
The Department of Labor continues to publicly state that they will re-propose a rule in the first half of 2012 that would change the definition of “fiduciary” under ERISA. We expect this new rule to still be overly broad and cover IRAs. Such a rule would have significant negative consequences for the fixed annuity marketplace. NAFA will watch closely and work to obtain a strong seller’s exception when the sale does not also provide investment advice.
SEC Fiduciary Standard/Section 913 Study
Section 913 of the Dodd-Frank Act required the SEC to review standards of care for providing personal investment advice to retail consumers, and should it see fit the SEC via rulemaking could address regulatory gaps. Currently there is no proposed rule, but a staff report released last January and recent SEC congressional testimony recommends a uniform fiduciary standard for broker-dealers and investment advisers. Many studies suggest that this would increase the costs to market and sell fixed annuities and the fiduciary standard, while appropriate for managing security portfolios, is not appropriate for the sale of a fixed annuity. Furthermore, NAFA believes the suitability standard in place in almost half of the states and rapidly being adopted in the remaining half, is a stronger standard for consumer protection and the suitable sales of fixed annuities.