Indies get inventive in helping reps push insurance products

Mar 6, 2006 @ 12:01 am

By Bruce Kelly

NEW YORK - Independent-contractor broker-dealers are becoming ever more inventive in devising ways for registered representatives and advisers to sell insurance products, some of which securities regulators have pointed to as vulnerable to sales abuses.

In December, an insurance marketing company, Asset Marketing Systems Insurance Services LLC of San Diego, said it had opened an independent broker-dealer that specializes in helping reps sell equity index annuities, a fixed-insurance product that has become a target of securities regulators.

The broker-dealer, Madison Avenue Securities Inc., is potentially the first "EIA-friendly broker-dealer," Ismael Manzanares, president and chief executive, said at the time.

Other broker-dealers, meanwhile, are growing concerned over advisers' recommending to a client a life settlement, which is when the owner of an insurance policy sells the policy to a financial institution.

In turn, the policyholder gets cash - a lump sum of the discounted value of the policy - right away.

Business prohibited

It's common industry knowledge that many broker-dealers do not allow their reps to do any kind of life settlement business.

Last August, Washington-based NASD issued a notice to members about equity index annuities but has given no such guidance about life settlements, a booming market, to its broker-dealer members. A call to Herb Perone, a spokesman for NASD, was not returned by press time.

Earlier, Mary Schapiro, incoming NASD chairman and chief executive, had warned broker-dealers about the sale of viatical and life settlements, saying they were of concern to regulators.

"NASD considers all of these products [including equity index annuities] to be securities, subject to firm supervision," she said at a conference last spring in Chicago.

NASD has a history of watching out for the sale of hot products, and the life settlements may fit the profile.

Institutional investors such as hedge funds have invested heavily in the life settlement markets, according to several published reports.

One report suggested that institutional money managers poured $10 billion to $15 billion into the market last year. The Best's Review study was released by A.M. Best Co. of Oldwick. N.J. That figure represents more funds than the previous seven years' combined.

The recent moves by independent-contractor broker-dealers are keeping in line with the changes of last year, when many firms said they were requiring reps and advisers to sell firm-approved equity index annuities.

American Portfolios Financial Services Inc. of Holbrook, N.Y., for example, within the next month or two is going to require that its reps steer life settlements though a broker approved by American Portfolios.

Some advisers are hearing about the "big numbers" around life settlements, but they are not necessarily appropriate for their clients, said Tere D'Amato, director of advanced planning at Commonwealth Financial Network of Waltham, Mass.

Broker approvals

About a year ago, the firm told its advisers that all life settlement business had

to go through a broker approved by Commonwealth.

The amount of life settlement business Commonwealth's 1,080 advisers do is relatively small, with three settlements being completed last year. Still, at times, they are appropriate, Ms. D'Amato said.

The firm is strict about its new policy, she said.

"We'll go out and shop it," Ms. D'Amato said. "Your client may be able to find a better deal, but we won't work with that broker."

At American Portfolios, the primary focus in supervising the sale of insurance products is on equity index annuities, said Stuart Samet, senior vice president of insurance.

But the firm also will require reps to "bring" life settlements into the broker-dealer and to use its approved life settlement broker, he said.

Such requirements at broker-dealers are sensitive, Mr. Samet said, particularly as firms and advisers are concerned about any perception of requiring reps to sell an investment product through the firm "without a good reason."

He said that Ms. Schapiro's comments are helping to drive the move to bring life settlements into the broker-dealer. But there's a problem, Mr. Samet said: "not being sure what she wants."


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