Staying current on new products is your responsibility

As an example, Moore mentioned two-tiered annuities and how they were designed was different than how they were being pitched to clients. That led to a ton of lawsuits, and was a factor that led to the SEC’s proposal of Rule 151A, which had sought to reclassify fixed indexed annuities as securities rather than insurance products. The proposed rule was ultimately vacated after significant and well-organized opposition from the industry with the help of certain members of Congress.

Kim O’Brien mentioned uncapped crediting methods as another potential stumbling block for producers, as it is now offered on many FIA products today and enables the consumer to take advantage of well-performing market indices without an index cap. But as O’Brien pointed out, “Uncapped does not mean unlimited.” Although an uncapped strategy does not use index caps to limit returns for clients, there are still limits on the potential returns due to the volatility controlled index crediting method mechanism, and the distinction between uncapped and unlimited needs to be pointed out to clients.

Producers who market an FIA with an uncapped crediting method as being low-risk, high-reward with unlimited potential for earnings while still being a safe vehicle for savings could set up unrealistic expectations for clients and get you into trouble with compliance.

“Everybody wants to have an uncapped crediting method, and something different than the S&P,” O’Brien said. “If you are selling uncapped, please understand the product.”

Remember that misleading advertising, poorly worded or misleading seminar scripts and direct mail pieces can get you reported. Kipper said that in his experience, the most common mistake that leads to enforcement actions is “not knowing your product, and overpromising on what isn’t there.”