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Thomas Currey, president of the National Association of Insurance and Financial Advisors (NAIFA), warns life insurance agents and financial service professionals that proposed legislation could change how they do business.

Specifically, he tells NAIFA members that the Senate Banking Committee is working on a financial services regulatory reform bill, which could mean that agents who offer annuities will have to make sure that the products they offer are the absolute “best,” and not just “suitable,” leaving the agents open to lawsuits and the interpretation of a judge or jury.

National Underwriter recently reported the most recent developments, after IFAwebnews.com wrote of actions late last year to move financial changes forward.

Below is a letter that Mr. Currey sent to all members of NAIFA:

Dear NAIFA Member,

Many issues we encounter in our business lives are fairly simple. For example, we don’t want taxes to diminish the value of life insurance or annuities our clients buy for their personal or family financial protection. Simple. Others issues are not so simple.

As the NAIFA Trustees, Officers and I travel throughout the NAIFA federation, we get the distinct impression that many NAIFA members may not have a full understanding of what’s at stake in many aspects of the financial services regulatory reform debate now going on in Washington. This seems particularly true regarding the way one proposed financial “reform” could impact how, or even whether, we as agents will be able to continue to help our clients solve their personal and family financial security issues. Please allow me to give you NAIFA’s position on what Washington calls the “standard of care” issue.

The outcome of the standard of care debate will govern the legal relationship and legal consequences of the business relationship between agents and clients when dealing in many of the staples of our trade — such as securities-based variable life insurance and annuities, as well as pure securities products like mutual funds. If Congress does not get the standard right, the consequences could be huge for agents and their clients.

The debate in Washington comes down to this: Should agents dealing in securities and securities-based insurance products be shoe-horned into a one-size-fits-all legal “fiduciary” standard of care relationship with clients? Or should agents be permitted to continue to operate under the current standard and be legally required to offer product solutions to clients who are deemed “suitable” for the client’s overall circumstances?

Self-proclaimed consumer advocate groups, some financial planning organizations, and of course trial lawyers are urging Congress to lump all agents into a fiduciary relationship with all clients and for all product purposes. They claim it’s the highest standard — significantly higher than the “suitability” standard. If the traditional definition of “fiduciary standard” were to become the law of the land, what would that mean for you as an agent?

Well, it probably means that when you offer a variable insurance product to a client, you would have to offer the very “best” one available — taking into account the products of ALL companies — not just those offered by your B-D. Assuming you could overcome the B-D limitations, how do you know which one product is the very “best”? You don’t, and can’t, until the SEC or a client sues you years down the road because the client perceives subjectively that the product you “sold” did not perform quite as well as, or cost more than, a different product.

What about the client? Fiduciaries are paid by fees. How many of your clients can afford or are willing to pay for up-front fees for your services? Will applying a fiduciary standard to broker-dealers mean that a fee-only model is the only way clients can receive financial guidance that is in the best interest? I am concerned that if the financial planning and consumer groups have their way in Congress, many middle-class families will be priced out of the financial security process — or scared off from even trying. Wealthy people have lots of options. Middle- and lower-income earners have fewer options in accessing investment advice and financial services, yet have equal or even greater needs for our help and guidance.

Ultimately the outcome of this debate needs to assure the public that the regulatory environment governing our business both protects consumers AND preserves their ability to choose affordable options. Since there is no proof that the fiduciary standard protects real people better than a suitability standard, the question becomes: How can we find out what the facts are? The answer: Conduct a thorough study by the SEC or a credible outside group. Let’s find out how current regulations are working before making a radical change. Only then will Congress and SEC understand what steps are necessary to address regulatory gaps and unnecessary duplication. And that’s exactly what NAIFA is suggesting to lawmakers in the Senate.

Any day now, the Senate Banking Committee is going to release a new draft of its financial services regulatory reform bill — and then we will know whether the “get the facts first — then write targeted rules based on those facts” approach makes it into the bill. If it does, you can bet the one-size-fits-all fiduciary duty proponents will try to have it removed. The bottom-line is, we have a real fight on our hands and we are running a marathon — not a sprint — to the finish.

How this issue works out in the end has yet to be determined. But you can bet your NAIFA dues, leadership and government relations staff are hard at work protecting you from activist consumer groups and industry coalitions, who are claiming the high moral ground of consumer protection in an effort to push their own agendas or market advantages. Obviously we know fully what is at stake and the potential consequences to our members.

Sincerely,

Thomas D. Currey, CLU, ChFC, LUTCF
NAIFA President