New annuity suitability

Nov 9, 2018

  1. Golfnut2112

    Golfnut2112 Guru

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    West Virginia
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    November 9, 2018


    American Equity Agents and NMOs


    Dave Milligan, Assistant Vice President, Regulatory Compliance


    Licensing Requirements and Permitted Activities

    The NAIC Suitability in Annuity Transactions Model Regulation, and the many state laws and regulations governing suitability, require you to gather certain information and use that information in making a recommendation to a consumer. Some of the specific items you are required to review with your client include:

    • financial situation and needs, including the financial resources used for funding the annuity
    • financial experience and objectives
    • existing assets, including investments and life insurance holdings
    • risk tolerance
    If you have an insurance agent license but not a securities license, some of these items put you in a situation where you may not be licensed to discuss certain items or concepts. While we cannot provide you with specific answers that may be construed as legal advice in relation to your state’s securities or insurance laws, here are some generally permitted and prohibited activities that you, as an insurance-only licensed agent, need to be aware of:

    Generally, you may discuss items that an individual consumer can access through public resources or that are considered to be of general knowledge to the average consumer, and information in the media that is general in nature, but factual, about financial markets or products. For example, the discussion may touch on:

    • the consumer’s risk tolerance, financial situation and needs
    • the stock market, in general terms, including market risk and recent/historical economic activity that would be general public knowledge
    • tax status of the proposed product and whether the consumer should consult a tax advisor or attorney regarding assets to be used for the purchase (if they need to be tax deferred, etc.)
    • the consumer’s desire, such as to have a minimum lifetime income stream
    • the suitability, replacement and transfer forms, and the information contained in them, as required by law
    • balancing risk or diversification
    • the insurance or annuity product as part of a sound financial plan
    All of these topics should be explained and discussed only as necessary.

    Again, in general, you shouldn’t talk to a consumer about specific performance of a security product, provide information you would gather from a non-public resource or discuss product specifics other than the insurance product for which you are licensed and appointed to sell. Examples of items to avoid:

    • discussion regarding specific risks in a consumer’s individual securities portfolio
    • giving advice to a consumer about securities or investment performance, or providing a comparison of how specific securities have performed compared to other financial products
    • recommending the liquidation of a specific security or identifying securities that could fund an annuity or insurance product
    • offering or performing research, analysis or providing a recommendation to a consumer on securities
    • assisting with the completion of securities forms
    • using improper titles, terms or descriptions that might mislead a consumer as to what you are licensed to perform or sell
    If you get specific or personal with a consumer in providing information or services surrounding securities, you most likely will be in violation of securities laws. How do you protect yourself from accusations of improperly providing securities advice or performing securities functions?

    Document everything. After a discussion with a consumer, send a letter of understanding to them outlining your discussion and recommendations, if any. Consider having the consumer sign and return a copy of this letter for your records. Keep copies of all documents, tools, comparison forms, etc., that demonstrate your discussion and the action you took.

    While we cannot say for certain doing the above will guarantee your avoidance of any violation of securities law, we suggest you look into implementing similar processes. Before adopting any process, you should seek the advice of an attorney or another expert in securities laws to assist you in determining whether or not your business processes are compliant. Some state insurance departments have issued bulletins or statements aimed at providing you guidance in this area. You should consider contacting your state regulator for additional information.

    Finally, if you hold or are considering getting a securities license, make sure you do so for the right reasons. If you decide to pursue a securities license simply so you can talk to consumers about their security portfolio or to increase the ease of handling liquidation of securities, but only offer consumers fixed products as a solution to their financial goals, you could still be fined or incur other discipline.

    Be advised, American Equity does not provide legal advice or guidance on issues surrounding securities laws and regulations. This article should not be relied on as providing any advice other than encouraging you to consider your practices to better serve your clients and remain compliant with all necessary laws, rules and regulations.

    For questions or more information, call 1-888-221-1234 and ask for Compliance, or email [email protected]. Thank you for your business and support.

  2. DHK


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    Thank you for sharing! These are excellent guidelines for everyone's consideration.

    Personally, I have the following disclosure on my website:

    If an insurance-only agent wants training on how to be in better compliance AND do a better job, I recommend checking out the Insurance Pro Shop. One of the things they teach is how to document and present your solutions in a very compliant manner.
    DHK, Nov 9, 2018
  3. DHK


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    DHK, Nov 9, 2018