Insurance agents who sell fixed and variable annuities often find themselves discussing a client’s investments in order to identify assets to fund new purchases. Conservative advisors often pursue dual registration in order to have a free rein during these discussions. More “adventurous” ones remain insurance-only, opening themselves up to competitor complaints and regulatory scrutiny.
In recent years, the states of Arkansas and Iowa have responded by drawing the lines between insurance and investments more finely so that insurance-only reps could stay out of hot water. Tennessee is the latest state to provide such guidance, issuing a bulletin this past May entitled “Licensing and/or Registration Requirements and Permitted Activities.”
According to the Tennessee document, insurance-licensed advisors may discuss a consumer’s risk tolerance, financial situation and needs, as well as general trends in the stock market, including market risks and recent or historic economic activity. But these discussions can only happen in the context of determining suitability of annuity purchases, policy loans, exchanges or replacement.
Conversely, in Tennessee, insurance-only advisors may not:
- Discuss risks specific to a consumer’s individual securities portfolio.
- Provide advice on specific investments.
- Compare those investments with annuity contracts or life insurance.
- Recommend liquidation of investments to buy an annuity or life insurance.
- Suggest allocations of client funds between insurance and investments.
- Provide research, analysis or recommendations regarding specific securities.
- Hold themselves out as investment advisors, broker-dealer agents or investment-advisor representatives unless properly licensed.
Violators of these provisions face license revocation plus civil penalties of up to $10,000 per violation. Although these guidelines only apply in Tennessee, other states may well take similar action in the future. As with all compliance matters, prudence regarding the source-of-funds issue is recommended. If you have any questions regarding a specific client situation, please seek legal counsel and/or check with your compliance department.
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