Life insurance agents are expressing concern about a proposed change emanating from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
At a congressional hearing this week, insurance industry representatives weighed in on a Securities and Exchange Commission study which was mandated under section 913 of the act. Released in January, the study recommended creating a common fiduciary standard of care for broker-dealers and investment advisers.
National Association of Insurance and Financial Advisors President Terry Headley testified that simply applying the SEC’s existing investment adviser fiduciary standard to broker-dealers would not be appropriate.
“Any new standard contemplated by Congress or regulators should recognize and adapt to the differences between broker-dealers and registered investment advisers or else risk adverse, unintended consequences namely, limiting the products and services available to middle-market investors,” Headley said. “If the fiduciary duty applicable to investment advisers is imposed on broker-dealers without accounting for the different business models and clientele of each respective profession, the case law—to say nothing of SEC guidance documents—could be misinterpreted and misapplied in a number of ways that would disadvantage the broker-dealer business model with no corresponding benefit to middle-market investors.”
In submitted testimony, Larry Barton President and CEO of The American College, offered a similar critique. “Our fear is that the SEC’s suggested standard-of-care adjustments and the related compliance complexity and costs will drive broker-dealers to target higher-income markets, focusing on clients who are the most economically viable under the new model to the exclusion of lower- and middle-income investors,” Barton wrote. “The SEC should be responsible for demonstrating convincingly why this will not be the case prior to taking any action to broaden applicability of the fiduciary standard.”
Barbara Roper, director of investor protection for the Consumer Federation of America, said industry concerns were overblown. “Given the billions of dollars at stake, it is hardly surprising that brokers whose business model is heavily dependent on the sale of variable annuities would fear application of a fiduciary duty to those sales,” she said. “In making their case that the fiduciary duty proposal would harm Main Street investors by increasing their costs or denying them access to valued products and services, however, the main insurance broker-dealer groups have so far chosen to ignore the actual approach the Commission has proposed,” she said.
