I've searched the forums and can't find anything discussing SEC Rule 151A, does anyone really want more compliance?
WB - it's the rule about annuity contracts.
EPT - what are your concerns?
That if it passes it will be just the beginning, next will be ALL fixed annuities, then life insurance, then who knows what else. Eventually you'll have so much compliance and crap to deal with that we wont be able to make any money for all the paperwork.
Not to mention the fact that it makes no sense, I mean I can call my car a Ferrari all day long but it doesnt make it go any faster or change the fact it has 4 doors.
From what I understand the agent side all you have to do is pass the series 7 or register as an RIA in the states you do business in. What's the big deal?
Who do you think is going to be taking their haircut on the commissions of the EIA that you sell?
This is a power grab and nothing more. 151a needs to be stopped.
Gaddock, being an RIA doesn't help since an RIA can't sell securities. As for taking the 7, it's a huge deal. There's a bunch of reasons for this.
1) First and foremost, an EIA does not meet any reasonable definition of a security. If an EIA is a security, so are all fixed annuities, all life insurance products, savings accounts, etc.
2)Making it a registered product means that a B/D gets to get a big chunk of money that they don't deserve.
3)Once a person becomes registered, they no longer have the freedom to run their business in the way that they want.
4)This is a power grab and nothing more. 151a needs to be stopped.
My B/D doesn't allow me to sell EIA's which is complete B.S.
OK then, the other side of the coin. I'm always eager to hear those that are passionate about a subject I know little about. I'm sold.
Down with 151A !!!!
Forget that pass 151a.. so punk insurance guys who create bad names for EIA on 20/20 can be more responsible.(not that the series 7 is hard, but it will weed out some of the rif raf)..
I would think you EIA guys(including me) would be all for this..
I don't need a compliance officer to tell me if an annuity is suitable for a client or not.
I think FINRA is a horrible regulator. I think 50 state regulators do a better job (and they have guns).
I think amateur insurance agents are AFRAID to talk about the "bad" sides of the products they sell: surrender charges for example. They're afraid that if they mention them that they'll lose the sale.
Well there's 2 problems there.
1) the agent isn't prospecting enough so he seems to "need" every sale.
2) the agent isn't disclosing the features of the product well enough so the other person can make an educated decision.
I'm not an amateur.
But that doesn't mean that having EIAs sold through B/D is the answer. EIAs are just like any other insurance product. What FINRA wants to do is FINE B/Ds and FINE reps and RESTRICT who can sell a product that has no principal risk to the investor.
In short, they want more money, power and control and they don't deserve it.
Didn't you just admit to the problem, insurance guys no liable for their lack of disclosure?
What would you suggest instead.
I think 151a at least helps a little. Not the overall answer, but haven't heard of a better one... Other than better disclosure on forms(those things don't disclose half the issues, or do it in the middle of a paragraph. Should add another disclosure(like the one my buddy has through his b/d... it show how much rep is compensated, surrender periods and and surrender penalties for each year and client has to sign on bottom)
I agree with squash. I already can sell them. screw everyone else if they can't.
Compensation is BS. No one knows and no one cares.
A regulatory summary page for all annuities that keeps them transparent - like type (FA, FIA), surrender charges & schedule? Might not be a bad idea. Would need NAIC to adopt it, but that still doesn't mean there aren't amateur agents who wouldn't disclose everything.
Insurance guys ARE liable for lack of disclosure. However, what is the RISK? If a RR doesn't fully disclose AND the client loses money, you have a REAL problem. EIAs DON'T lose money! So, what would happen? The premium is refunded and the agent is charged back his commission - particularly if done in the first year. Some EIAs do a charge back for ANY withdrawal in the first year. So there ARE penalties to the agent if they don't fully disclose the details of how the product works... and it hits them right in the pocket book.
If insurance agents like keeping their earned commissions, they should document everything and disclose all the details of the products they are selling. It's common sense. But remember: There's no market risk to the principle balance in the EIA so the agent should SELF-REGULATE his own behavior to avoid those charge backs of his commissions!
I think the issue regarding agents isn't commissions it's the surrender and after the first year, there is no harm to the agent if the client gets hit with a 15% surrender... AND THAT IS LOSS OF PRINCIPLE..
Is there harm to a RR if a client gets hit with a surrender out of their VA after the first year?
That's a loss of principle AND if the shares are down, then its "reverse dollar cost averaging".
Who's at fault if a client needs money over and above the free withdrawal amount? The client and their particular circumstances!
But clients have SELECTIVE MEMORY - regardless of you being an insurance agent or RR or IAR. Even if you fully disclose at the time of sale, clients WILL forget. That's a given. Our job? To remind them of the original strategy and of the penalties for going above the free withdrawal amount.
Of course, you're probably thinking that all insurance agents just "sell and run". The bad one's would. The good ones want their clients to call THEM to process any withdrawals and leave the company out of it. The problems come in when the client calls the COMPANY and the COMPANY tells them of the surrender charge - and later questions whether the agent fully disclosed that information.
Client service and periodic reviews would solve a lot of problems too.
So basically, just like EVERY other regulation...
It's designed to PUNISH those that do a good job for their clients because "stupid is as stupid does".
VA surrenders aren't anywhere close to EIA surrenders..Also people can use arbitration to get help if they were improperly put in a VA
I think a lot of people don't qualify for them. Because they don't know how to or don't want to.
How does it punish those that do a good job?
A % is still a %. (BTW, I agree that anything over 10% surrender charge isn't a great product. My EIAs have surrender charges that are as HIGH as 9% for the 1st year declining from there and only go as long as 10 years - similar to many bonus VAs that are out there.)
People CAN use arbitration regarding VAs. People CAN sue insurance agents. Do you actually ENCOURAGE them to do so? If so, then you're a piker of the worst sort because you DON'T KNOW what happened at the time of sale.
Agents who ARE doing a good job are having a product taken away from them because of a few who are doing a lousy job. It's the same with every regulation and every compliance decision to MAKE YOUR JOB HARDER when you're simply trying to do what's best for your clients.
Remember: A product isn't evil or good. It's just a tool in the hands of an agent. It's all in how it is being used for the benefit of the client.
Should anyone ever put 100% of their money in one product? No. That's a foolish decision for any agent/advisor to make AND equally stupid for a client to do. Remember that the client wrote the check and signed the application and accepted the contract.
Let me guess... you don't sell any annuities, do you?
I think there are two reasons for 151a. First, while an index annuity is an insurance product, it uses securities to generate returns. Should a person who sells a product that uses securities be licensed to sell the underlying securities? Second, and this is from strictly my own personal experience, EIA's are sold as stock returns with no downside. Maybe this is uncommon and it is likely that I only see the people that are unhappy with the product. However, the story I hear is consistent.
First an EIA does not use securities to generate returns, securities are subject to market risk, an EIA is not. Second if someone is selling an EIA as "stock returns" then THEY need to be punished, not the product, and finally if you have a client that is complaining that they DIDNT LOSE A DIME when the rest of the market was down 40% then you need to find a new client base cause you will get sued regardless of what you sell.
Look at it this way, scores and scores of people are killed by automoblies every year, so do you outlaw cars or go after the idiot drivers?
Most of my agents are already security-licensed so that's a non-issue, the real issues if 151A are : loss of income due to haircuts, the "snowball" effect that will mean other products also being classified as "securities", loss of choice for clients, increased compliance, increased cost of doing business, more time doing paperwork and less time with growing the business, and numerous other issues.