FOUR-PART SERIES: Fiduciary Basics – Permitted Activities for Insurance-Only Advisors

As we move steadily towards the June 9 applicability date of the Department of Labor’s Fiduciary Rule, Americans for Annuity Protection is receiving more and more questions related to how the insurance-only agent will not only survive but prosper under the Rule’s requirements.

Over the summer months, we will focus on key areas of responsibility under a best-interest fiduciary practice for all annuity advisors.

The first of our four-part series will deal exclusively with the permissible and prohibited activities of insurance-only advisors under state and federal laws and regulations when making a recommendation to purchase an annuity.

In parts two through four, we will discuss the Impartial Conduct Standards required under the Rule for care, skill, prudence and loyalty and what those mean in actual practice.

The DOL made it clear in their October 27th Frequently Asked Questions that nothing in the Rule prohibits an insurance-only advisor from selling fixed indexed or fixed rate annuities or other insurance products for which he or she is licensed to sell.

The FAQ also clearly stated that in doing so, they would not be in violation of state and federal security laws. The FAQ included this important caveat, however: they must only engage in activities their state insurance department authorized them to do.

The guidance in this article will help insurance-only advisors better understand the types of activities and conduct that are within, and those that are beyond, the scope of their license. To remain productive and better protected from running afoul of insurance and security regulation, the insurance-only advisor must only provide services and advice within the scope of his or her license.

Who is an Insurance-Only Advisor?

An insurance-only advisor is an individual who holds a state(s) insurance license authorizing the sale of fixed annuities or life insurance products that are under state insurance department’s regulatory oversight. The insurance-only advisor is not a registered representative, investment advisor, registered securities agent or investment adviser representative under federal or securities law.

Insurance-only advisors may provide advice as part of a financial plan, or about providing financial planning services. When doing so, insurance-only advisors should clearly identify themselves as individuals who hold a state insurance license authorizing the sale of annuities or life insurance products.

Insurance-only advisors should not use the following term or terms: registered representative, investment advisor, registered securities agent or investment adviser representative under state securities; and, the use of similar titles that indicate to customers that an individual is licensed to provide investment advice, or holding oneself out as providing investment advice to others.

Professional designations that are considered misleading by the state, the advisor’s insurance company or the state securities regulator may not be used. For example, an insurance-advisor may not hold themselves out to the public as a “Financial Planner” without the requisite license, degree, certification or designation.

What Communications are Impacted?

The guidelines for using only permissible activities should be followed regardless of the location or the type of communication medium. Examples of communication mediums are:

• Newspapers, news magazine, or business or financial publications;
• Printed advertisements, marketing materials or other collateral material;
• Television, cable, radio, or internet posting, websites, blogs or other broadcast including e-mail;
• Social media communications and electronic messages;
• Public or private seminars, webinars or presentations open to the public; or,
• Individual consumer meetings, whether taking place in public or in private.

Permitted Activities for Insurance-only Advisors

The Insurance-only advisor is required by suitability laws to discuss the following:

• the consumer’s financial experience and financial objectives; including whether the consumer needs to earn a guaranteed rate of interest, needs guaranteed minimum increases in guaranteed values, or wishes to have available a minimum lifetime income stream,
• risk tolerance, including the need for guaranteed annuity value protection or protection from market risk;
• the need to balance and diversify risk, including the need for product or issuer diversification that may support an insurance position within a consumer’s financial plan;
• and other elements of the suitability review process, including tax status, existing assets, liquidity needs, net worth and the planning time horizon.

The Insurance-only advisor may discuss with the consumer(s) the stock market in general terms, including market risks and recent or historic economic activities that are generally known to the public and regularly discussed in public media.

In his or her general discussion about the expectations of the funds being considered to purchase the annuity or life insurance, the insurance-only advisor may discuss that the identified funds:

1. Need protection from market risk
2. Should maintain or utilize tax deferral strategies
3. Need to provide a lifetime income stream
4. Need to earn a guaranteed interest rate
5. Need to utilize an indexing interest crediting strategy with guaranteed floors

Discussions about fees currently being paid on the funds and balancing risk, diversification etc. that support an insurance position within a consumer’s financial plan are also necessary and permissible for the insurance-only advisor.

Activities Specifically Prohibited for Insurance-only Advisors

In general, the following list includes the main activities in which an insurance-only advisor may not engage. A more complete list may be found at www.aapnow.com.

1. Discussing or evaluating the consumer’s specific securities or investment performance; or comparing the consumer’s actual securities or investment performance with other financial products, including annuity contracts or life insurance policies.
2. Recommending the liquidation of securities or investments, or to identify specific securities or investments that could be used fund an annuity or life insurance.
3. Offer of research, analysis or recommendations to a prospective consumer regarding specific securities or investments.

This article is not intended to be a complete description of permissible and prohibited activities, but rather generally recognized activities insurance-only persons may engage in. As always, Americans for Annuity Protection encourages insurance-only advisors to seek their own counsel and utilize the resources available from their appointed insurance companies for more information and help with their business practices and services.

Insurance advice is a critical and necessary component of a sound financial plan. Insurance advisory services are used to give the insurance-only advisor reasonable grounds for believing that the recommendation is suitable for the consumer and is also required by state law.

Insurance-only advisors are necessary because of the unique product-specific expertise they bring to consumers. While obtaining other licenses can certainly broaden the advisor’s service and product offering, they are not required to continue to provide recommendations to purchase annuities or, for that matter, life insurance.

By following the guidelines outlined in this article, insurance-only advisors will not merely survive, they will prosper offering insurance-balanced advice that is sadly missing from many investment planner conversations.

Kim O’Brien is a 35-year veteran of the insurance industry specializing in guaranteed annuities and life insurance. She is the current CEO of Americans for Annuity Protection and Founder of AssessBEST, Inc., a sales and compliance software system. Visit www.AAPnow.com or www.AssessBEST.com for more information. Contact Kim at [email protected].

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