Rule 151A and Life Insurance

[xrac]

You can't be serious? You think an incompetent regulatory body that can't regulate the industry it was set up to regulate, should single handily take over an industry that has had very few problems? And those problems that do creep up are generally dealt with swiftly. Do you think Madoff would have swindled $50,000,000,000 if 50 state regulators regulated invemstment adivsors with over $25,000,000 in assets? Not an f'ing chance.

Any type of financial product is designed to help grow money. CD's, savings account, interest bearing checking accounts, mortgages, life insurance, sticking money in a matress under a bed. Should the SEC take over everything?

Good post! I would say AMEN but that is already taken.

What happens with FINRA in charge? More agents having to spending more money on security licenses, spending more on E&O (that type of E&O usually runs $100 per month and up), and more money and time spent on compliance. More paper generated that no few read or understand and more opportunity for FINRA to manifest it's power over the agents. FINRA loves to come in and find some terrible infraction like having paper work filed incorrectly. They can then fine the rep. FINRA will probably get a bigger budget and get to hire more people.

Now the agent (Rep) gets to make less money while doing more work but the B/D gets to make more money. Sounds like just what this country needs. I am sure the United States senior investors will be much safer!
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[BiggitySwat]

Anything sold as an income-growing investment is a security. Insurance is supposed to protect people, not promise to make them money.

Respectfully disagree. If your definition of a security is true, then why shouldn't Vanilla UL and/or Whole Life be a security? Their cash values accumulate over time and they can be tapped as an income stream via policy loans and withdrawals?

Also JMO, let's think about what makes a security a security: the risk of a loss of principal/capital to an investor. A VUL (Variable Life) and Variable Annuities are securities because the investor is using their premium to invest in separate subaccounts which can go poorly.

Indexed Annuity and Fixed Annuity are different - the insurance company is now taking the risk, NOT the client, by having the client premium invested in their general account, and guarantees the client against a loss of principal.

Also, if you really see how Indexed Annuities and EIULs have their interest credited, you'll see that they actually don't use the S&P 500 as a benchmark per se like a no-load index fund. The insurance companies use call and put options in order to attempt to generate better returns than from a fixed product. An important fact to remember, again, is that the insurance company is the one playing around with the options contracts - NOT the client, and more importantly, the risk from these options is taken away from the client via contract/policy provisions providing a "rate floor" and/or minimum interest rate.

And JMO, one last thing. Even if what you say is true in that the SEC reserves the right to declare anything it wants as a security, there is such a thing as "doing right" for your clients and recognize industry actions which may be a disservice for people. Answer me this: by regulating these insurance products as securities, it will create TONS more filing fees, registration fees, 400-page prospectus legal drafting and printing costs, etc. We both know that the insurance companies won't absorb this cost, they will pass it along to the client. This means lower caps on the indexed buckets, increased policy "admin" fees, and more broker-dealer red tape involved to buy one. On the agent side, it means having to join a broker dealer and have your compensation run through a "grid," which can decrease your commissions anywhere from 30-60%, depending on your b/d and grid level.

Regardless if the SEC has a "right" or not (and I think they don't), 151A serves nothing but to hurt clients by giving them watered down products, it hurts agents by significantly stripping their compensation down (which encourages mass-selling of product versus taking care of a few clients well), and in the end, the only people benefiting are FINRA, broker-dealers, and the SEC after they collect the millions of dollars of fees they will assess to "regulate" these products (and also to regulate us as securities grunts now, not as indie insurance agents).
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Heck, now they are being represented not as securities, but as better than securities.

Indexed annuities....offering upside potential during bull markets, minimum interest rates, and a guaranteed protection of capital if held to the contract dissolution date. Low to no fees, no M&E, no sub-account management fees.

I then have a client who is 65 years old, cannot afford to lose his hard-earned nest egg, especially after this latest Wall Street meltdown. He also recognizes the need for a floating interest rate that will help him beat inflation compared to bank CDs, regular fixed annuities, and T-bonds.

As a stockbroker, I can show him stocks, bonds, funds, VAs, real estate backed securities, oil projects, etc. Though some of them have performed well over the past.....40 years? NONE of them have guaranteed safety.

I then show my client a product that will allow him to have his cake and eat it too - an indexed annuity. He then asks me if I think this product is a better fit for him than the securities I showed him.

Can you say a HELL YEAH? You're damn right that I represent as FIAs as "better than securities," and I bet many seniors out there who lost big with Merill, Eddie Jones, Morg Stanley, Vanguard, etc. wish that their advisors had that attitude before the crash

 

[insuranceexec]

Another point to consider is that if rule 151A is upheld; then every Securities licensed individual would have to register with their B/D, and list who they would like to represent and sell. It is then at the sole discretion of your B/D whether or not they are going to allow that company or product to be sold. As sn OSJ, Series 24 licensed individual, I am required to make sure that all down-line agents only sell approved Variable annuities and life through the B/D. I know many of you are familiar with the securities side and understand the downside to receiving a GDC, Gross Dealer Concession.

In summarizing the above paragraph; you will be limited to the annuity companies you can represent through your B/D and also will have to take a reduced comp.

With FINRA and the SEC getting involved the B/D you are associated with will only allow you to sell certain approved EIA's. The only Annuity companies they will approve is the ones they are getting the best kick back from. Also you will take a haircut on the commission for not selling proprietary products. Again the downside to this is that you can no longer offer what you, the professional, thinks is in the clients best interest. This communist action will only further the regulations associated with EIA's, and put a great deal of the smaller annuity companies out of the EIA business.

FINRA, SEC, and the NASD are nothing more than glorified communist. Regulation, Regulation, and then some more regulation. Now for the cherry on top! In a recent news report FINRA declared they were seeking to adopt a pre-application application for anybody wanting to purchase an EIA; or any product for that matter that has interest that is declared by an outside indice.

In summary they are wanting the client to take an application to see if the client is intelligent enough to understand and comprehend the product they are thinking about purchasing.....What makes these people qualified to do any of this?


STUPID! STUPID! STUPID!

 

[BiggitySwat]

Again the downside to this is that you can no longer offer what you, the professional, thinks is in the clients best interest.

I have a relative whose financial advisor is a wirehouse Series 7 broker. I am cool with the advisor and talk with him from time to time about business - but what's scary is that I had to teach him what an EIUL/IUL was and how indexed annuities work. Up until that time, all he knew was Variable Life (VULs and VAs). Even though he is educated now, his broker-dealer still won't allow him to sell fixed annuities PERIOD.

Again, I have to question how Rule 151A benefits consumers by forcing their financial advisors to become biased, securities-touting FINRA henchmen working for Wall Street?

This communist action will only further the regulations associated with EIA's, and put a great deal of the smaller annuity companies out of the EIA business.

America, land of the Socialists, where as an unmarried single man with few write-offs can pay 40-50% taxes going to feed and pay the beer bill for my unemployed, lazy, potbellied buddies down the road receiving a guaranteed monthly income for life (and no, the product they're using isn't a fixed annuity.)

 

[JMO Fan]

Insurance (including annuities) is wonderful stuff. It's the free enterprise means to preserve people's dignity. Most people don't have nearly enough.

Anything sold as an income-growing investment is a security.

My point is that part of the "Safe Harbor" rule (old Rule 151) focuses on why & how insurance is sold. If it is sold largely for its investment potential, rather than its insurance value, it falls outside the Safe Harbor. The sales focus for any insurance product can make it a security under the law.

My home state securities office (no, I don't work for them) actively prosecutes insurance agents who sell insurance as a replacement for other investments, including CDs, gold, and mutual funds. When they learned that an EIA had been sold as "a safer investment than treasuries," they got the agent's insurance license revoked as well as penalizing him under state securities law. The implications of Rule 151a stretch beyond what some folks believe is a security, but that doesn't mean they won't/can't regulate it.

This is not meant as a defense that the government (SEC or other) does a great job of preventing people's problems. But it does seem wise to steer clear of activities that could run afoul of the law. I'm a strong believer that insurance and annuity products have their appropriate market when suitably sold.

 

[insuranceexec]

insurance[/U] license revoked as well as penalizing him under state securities law.

Why were these agents prosecuted? Would you not agree that an EIA is less volatile than Mutual Funds. It is a violation of a NON-LICENSED securities guy/gal to give "ANY" advice on a securities related matter. So maybe I can see your point on that.

However, an agent losing his license as a result of replacing a CD with an EIA is absurd, and I do not believe it! If you would be so kind as to provide proof so that I may substantiate your claim I would appreciate it. With the above being said there is always an exception; i.e. misrepresentation, or fraudulent suitability form, but in my ever so humble opinion this is not the norm.

For future reference GOLD is not a a TREASURERY, it is considered a COMMODITY, thus is traded accordingly. Thanks for your post.

 

[Norwayguy]

Another point to consider is that if rule 151A is upheld; then every Securities licensed individual would have to register with their B/D, and list who they would like to represent and sell. It is then at the sole discretion of your B/D whether or not they are going to allow that company or product to be sold. As sn OSJ, Series 24 licensed individual, I am required to make sure that all down-line agents only sell approved Variable annuities and life through the B/D. I know many of you are familiar with the securities side and understand the downside to receiving a GDC, Gross Dealer Concession.

You make it sound like this is something that is coming it is already hear...about 1 1/2 years ago my B/D started requiring us to run EIA through the B/D to include full securities new account paperwork on these annuities and then listed which annuities where allowed... They said we could request additional annuities be offered if they met a list of criteria ie limits on commissions and surrender charges and what I found funny there own products did not meet the strigint requirements but where listed as approved.....so was the investor better protected....Yes and No it goes back to the rep, I had to accept less money to offer my clients adaquete products instead of force feeding the company junk.

 

[insuranceexec]

You make it sound like this is something that is coming it is already hear...about 1 1/2 years ago my B/D started requiring us to run EIA through the B/D to include full securities new account paperwork on these annuities and then listed which annuities where allowed... They said we could request additional annuities be offered if they met a list of criteria ie limits on commissions and surrender charges and what I found funny there own products did not meet the strigint requirements but where listed as approved.....so was the investor better protected....Yes and No it goes back to the rep, I had to accept less money to offer my clients adaquete products instead of force feeding the company junk.

My point was that it is only going to get worse. Sorry for leaving the wrong impression.

 

[Freddie]

You can't be serious? You think an incompetent regulatory body that can't regulate the industry it was set up to regulate, should single handily take over an industry that has had very few problems? And those problems that do creep up are generally dealt with swiftly. Do you think Madoff would have swindled $50,000,000,000 if 50 state regulators regulated invemstment adivsors with over $25,000,000 in assets? Not an f'ing chance.

Any type of financial product is designed to help grow money. CD's, savings account, interest bearing checking accounts, mortgages, life insurance, sticking money in a matress under a bed. Should the SEC take over everything?

Agreed. Small investors have been screwed over by the brokerages and fund industry with the help of hedge funds. Where was the SEC to stop naked shorting, no uptick rule, bear raids, plus buying credit default swaps (CDS) while shorting plus spreading rumors to destroy companies. Soros, Flower and Paulson (the other Paulson) along with other hedge shorts just lined them up this year and attacked one after the other. Naked shorting, buying CDS and rumors just wiped em out in bear raids.

Allowing brokerage firms like Merill, Morgan and Goldman to go to 40 to 1 leverage, they blow up the force taxpayers to bail them out.

Plus the SEC failing to detect former FINRA/NASD board of governor Bernie after Mr. Markopolous detailed how Bernie was the Biggest Ponzi Scheme in history and pestered them for 8 years at two offices of the SEC! The former SEC attny in the NY Post said they could not find the fraud.

Finding the fraud would have been relatively simple. #1 Bernie said he was using the S&P 100 options but the market for those options was far too small. #2 Markpolous gave them a road map. #3. The SEC had no one with any basic quant knowledge to understand why Bernie's strategy was a phony. Markopolous did and told the SEC how.

If the SEC wanted to regulate and protect investors - they should have made Bernie custody the funds at another firm or require him to use a real CPA firm or checked a few of his trades and bank accounts.

EIAs, EUILs and other insurance products are far from perfect but they appear to be the only investments out there where the investors protetcts their principal and also has a chance to keep up with inflation. In 2008, even a well diversified portfolio across 4 asset classes with excellent diversification would have been hammered.

The state regulators for insurance do a far better job than the SEC does in the securities industry.