Everything You Wanted to Know About 151A

[retread]

OK.... there are a number of threads on 151A, and they are becoming redundant. This thread is an attempt to put it all into one basket.

The mother of all links to info about 151A:
The Battle of Rule 151A: The Indexed Annuity Community Takes on the SEC - Regulatory,Legislative and Tax Issues - Life and Health Insurance News

 

[Crabcake Johnny]

This is an honest question since I know nothing about how stock brokers work:

The SEC seems to be would up about suitability and disclosure. Let's say an unethical stock broker contacted a 70 year old and convinced them to put their entire nest egg of $500,000 into high risk stocks. They crash and are left with nothing.

Are there actions that person can take? Would that broker be investigated? In danger of losing their license? What entity determines suitability regarding investments?

 

[retread]

This is an honest question since I know nothing about how stock brokers work:

The SEC seems to be would up about suitability and disclosure. Let's say an unethical stock broker contacted a 70 year old and convinced them to put their entire nest egg of $500,000 into high risk stocks. They crash and are left with nothing.

Are there actions that person can take? Would that broker be investigated? In danger of losing their license? What entity determines suitability regarding investments?

This is exactly the argument. The SEC has shown a poor record of catching unethical brokers under their authority. Madoff is only one example. Insurance commissioners at the state level are more apt to keep a watchful eye on agents under their authority if for no other reason closer proximity to the activity. The SEC hangs out in NY and still can't keep up with Wall Street scoundrels. I think the Congressmen that worked the legislation recognized that and that's why they kissed off the SEC.

Other than that, the SEC was generally viewed as just trying to expand their fifedom, and they already proved they had more on their plate than they could handle. Annuities are not "at market risk", but guaranteed by the insurance carrier. The SEC's argument (weakly) said "well, annuities LOOK like a market investment, even if it is not actually at risk. Congress generally held that things were working better than the straw arguments the SEC tried to raise and decided to leave the system alone.

And yes, lawsuits can be filed for monetary losses... even Madoff's former friends are lined up in court. Also, I know of a case (my next door neighbor) that was sold an annuity by a pushy Wadell & Reed broker. She threatened a suit, and they returned her money. She's in her 80's.... they had no business trying to sell an annuity to someone that age.

 

[Norwayguy]

This is an honest question since I know nothing about how stock brokers work:

The SEC seems to be would up about suitability and disclosure. Let's say an unethical stock broker contacted a 70 year old and convinced them to put their entire nest egg of $500,000 into high risk stocks. They crash and are left with nothing.

Are there actions that person can take? Would that broker be investigated? In danger of losing their license? What entity determines suitability regarding investments?

You could definatly file a suit against the Broker and would likely collect against his E&O in arbitration unless while he sold you those high risk stocks also incorrectly filled out the suitability forms showing that it would be a suitable investment for you....Matter of fact the Principal that signed off on the trade should have stopped it in the first place.
- - - - - - - - - - - - - - - - - -

Also, I know of a case (my next door neighbor) that was sold an annuity by a pushy Wadell & Reed broker. She threatened a suit, and they returned her money. She's in her 80's.... they had no business trying to sell an annuity to someone that age.

I'm sure your correct in her case and in most instances a deffered annuity for someone in their 80's would not be appropriate, lets just not make a blanket statement because I have met people in their 80's that have put a portion of their assets in a deffered annuity because they had no use for the money and wanted to deffer the taxes on it in his case we dicussed a single premium life policy because it would be the most effective way to transfer that money to his children but his health wasn't that good....

So once again it all comes back to suitable investments.

 

[scagnt83]

Exactly. Its all about suitable investments.


Could the broker in the example above be sued? Sure.

But that broker is required to fill out suitability forms, if the funds do not line up with whats suitable then the broker certainly could be held liable.

If this was more than just a one time offense, then the SEC could conduct an in depth audit and look at suspending/terminating his license.

Ultimately the SEC determines suitability regarding investments if there is an issue. But lets remember that suitability is dependent on the client and their personal circumstances PLUS their personal preferences.
It is the personal preferences part that screws most people.



I had a prospect whom I spoke to multiple times over the course of a few months (this is around the beginning of 08).
He was 75 years old and had about $800K in assets, all in stocks (mostly in the financial and energy sector, not diversified well at all).

I pointed out the many reasons why he needed to drastically decrease his risk level, but he never would bite the bullet and do it. His "broker" told him that he had enough dividend paying stocks to help him through any downturn in the market.

But more importantly; He liked being 100% in the market, it was just what he wanted.

I took him through the whole "fun money" vs. "needed money" scenario that I talk to clients about, but since he had done so well for so many years he felt that he was invincible.

I got some CD money from his wife put into some annuities, but that was it.

Well, way after I had given up on his assets he calls me (end of 08). Tells me how his portfolio had lost 80% of its value, and asks me what he should do.
He was still getting dividends from most of the dividend paying stocks, but some had cut/deferred dividends (something that his broker never told him that they could do), and he was barely able to pay all his bills. He had absolutely no money for any extras and had to cancel his country club membership.

When I spoke to him I offered him a Guaranteed Lifetime income with inflation riders that would have given him MORE than what he was accustomed to living on.... lol

I ended up advising to put half in CDs and leave the other half in the market. He caught the 09 upswing and did well off of it.
I assumed that after he was up to $500K he would seek safety (as he had told me he would); instead he decided he wanted to ride the roller coaster some more.... not sure how its doing for him... dont care either.... lol


But my point is that a person can know that their investments are risky to the point of dangerously stupid, but still want to keep them where they are at.
You cant always fix stupid.

And no regulation in the world would fix this clients problems.

 

[arnguy]

well explained

Thank you for your comment.

 

[Larry Tew]

Fixed (not index) and even variable annuities with guaranteed income / withdrawal riders can be a suitable product for people in their 80s. It depends on the particulars... in other words, SUITABILITY.

 

[ScottLFB]

Ok.. I'm still confused.. 151A is Dead.. It was proven that SEC has no authority in the matter and Fixed Annuities are backed by the insurance Carriers.

Why then may I ask do 95% of Agents with securities licenses I talk to all tell me that they can't do anything unless it's approved thru their Broker/Dealer? Is it a situation where the B/D has keep the outcome of the 151A verdict on the DownLow and the Agents are still under the impression they have to get approved to offer anything on the Fixed side of the market OR do Securities Agent just like donating their own commissions to their B/D for no reason? Hell, I've even asked some Agents if I need a good Auto Policy do you have to check with your B/D for their "approved" list.. Lol, that usually leaves them a little speechless and the wheels turning.

 

[retread]

Ok.. I'm still confused.. 151A is Dead.. It was proven that SEC has no authority in the matter and Fixed Annuities are backed by the insurance Carriers.

Why then may I ask do 95% of Agents with securities licenses I talk to all tell me that they can't do anything unless it's approved thru their Broker/Dealer? Is it a situation where the B/D has keep the outcome of the 151A verdict on the DownLow and the Agents are still under the impression they have to get approved to offer anything on the Fixed side of the market OR do Securities Agent just like donating their own commissions to their B/D for no reason? Hell, I've even asked some Agents if I need a good Auto Policy do you have to check with your B/D for their "approved" list.. Lol, that usually leaves them a little speechless and the wheels turning.

It's just a guess, but it appears you are associated with a financial group. Perhaps daily operations differ from an insurance marketing group or independent insurance agent.

 

[VolAgent]

Ok.. I'm still confused.. 151A is Dead.. It was proven that SEC has no authority in the matter and Fixed Annuities are backed by the insurance Carriers.

Why then may I ask do 95% of Agents with securities licenses I talk to all tell me that they can't do anything unless it's approved thru their Broker/Dealer? Is it a situation where the B/D has keep the outcome of the 151A verdict on the DownLow and the Agents are still under the impression they have to get approved to offer anything on the Fixed side of the market OR do Securities Agent just like donating their own commissions to their B/D for no reason? Hell, I've even asked some Agents if I need a good Auto Policy do you have to check with your B/D for their "approved" list.. Lol, that usually leaves them a little speechless and the wheels turning.

A B/D has to approve all outside business activities, OBA. If it is an unapproved OBA, you can be fined and/or lose your license. So, they can limit the other products a RR can sell. And yes, that can even extend to auto insurance.