Legislation/Regulation

Ball Now In SEC’s Court; FPA ‘Pretty Happy’;
But Insurance, and Wall Street Forces Still Have the Guns to Prevail

In a startling turn of events, a House/Senate conference committee last month paved the way for regulation that would impose a fiduciary rather than simply a suitability standard on all financial advisors when they give investment advice to clients.

Later, the full House passed the measure as part of the massive, 2,000-page Financial Reform Act. It enables the Securities and Exchange Commission (SEC) to write a regulation requiring the fiduciary standard – something the Commission has long wanted to do on its own.

The Senate was expected to follow suit when Congress returned from a week-long July 4th recess. But, at press time, questions lingered over whether Democrats had enough Republican votes to beat back a possible filibuster.

“We’re pretty happy with the way it turned out,” Dan Barry, chief Washington lobbyist for the Financial Planning Association (FPA) told FA.

“We expect the SEC to seize on this authority they’ve been given.” The FPA and a Financial Coalition of which it is part have been in the forefront of lobbying for the fiduciary provision.

But the fight is far from over. Insurance interests led by the National Association of Insurance and Financial Advisors (NAIFA) and its allies, large security broker/dealers who sell proprietary products and are associated with insurance companies, have vigorously opposed the fiduciary standard, saying it was “loosy-goosy” and would trigger countless lawsuits against insurance agents.

The fiduciary standard requires advisors to put the best interests of their clients ahead of their own and to reveal any conflicts of interest when giving investment advice. The suitability standard, which broker/dealers now use in supervising their reps, holds simply that the investment advice be “suitable”, considering a client’s risk tolerance, time span and other factors.

NAIFA questions how a “best interest” standard will be interpreted by a regulator at any given time. Does “best” mean cheapest? The one with the best carrier rating? The best historic underwriting and service standards? NAIFA also has “serious concerns” that reps who are contracted to sell proprietary products and receive commissions could be placed in untenable legal situations.

Historically, large trade groups have won these appeals to regulatory bodies because they have more money and more people to bombard the regulators with exhaustive studies and detailed analyses.

But this doesn’t bother the FPA’s Barry. He contends the Fiduciary vs. Suitability issues have been “publicly discussed and debated over and over. The Commissioners aren’t likely to learn anything they haven’t already heard.”

Nevertheless, the fiduciary standard has many inherent nuances. So there are many ways the SEC could go in the final rule-making.

SEC’s 151A Rule Derailed
Indexed Annuity Regulation Left To The States

Another surprise in the financial reform drama – this one a NAIFA triumph -- came when the House/Senate conferees agreed on a provision that essentially bars the Securities and Exchange Commission (SEC) from regulating indexed annuities, thus leaving this task to the states.

Indexed annuities were never part of either chamber’s version of the financial reform bill until – seemingly out of nowhere – came an amendment from Sen. Tom Harkin (D-IA) and endorsed by House conferee Gregory Meeks (D-NY). It said indexed annuities were not securities.

The SEC had adopted a rule – 151A – that would treat indexed annuities like securities. Then, last December, in the face of strong opposition from insurance interests, the commission delayed implementation of the rule until 2013. Spearheading this opposition was the National Association of Insurance and Financial Advisors (NAIFA).

The amendment triggered an immediate response from the Certified Financial Planner Board of Standards, whose president, Kevin Keller, said:

“These are products that are ripe for abuse among the elderly. It’s important for consumers, especially the elderly, to have the protection of the SEC.” He pointed to a 2009-10 Board survey, which revealed many stories of malfeasance involving EIAs.

Dan Barry, chief Washington lobbyist for the Financial Planning Association (FPA), emailed members to oppose the amendment in letters, emails and phone calls to Congress. The North American Security Administrators and the Consumer Federation of America also pushed back against the proposal – all to no avail.

NAIFA Webinar
Will Give Regulation Updates

A webinar providing updates on financial services regulation, federal health care laws and efforts to tax insurance products will be presented by the National Association of Insurance and Financial Advisors (NAIFA) Tuesday, July 13 from 1 to 2 p.m. ET. To register, go to https://www2.gotomeeting.com/register/267094674 Questions: contact the NAIFA Member Service Center at (877) 866-2432.

FA