State officials to flag brokers with disciplinary history selling insurance

Program would help prevent rogue brokers from restarting careers in insurance with clean slate

Jun 5, 2015 @ 1:37 pm

By Mark Schoeff Jr.

State insurance officials want to identify brokers who have been barred from the securities industry who are selling insurance.

And so the National Association of Insurance Commissioners is developing a program that would inform state insurance departments about insurance professionals in their state who have a disciplinary history with the Financial Industry Regulatory Authority Inc., according to the commission.

The process would involve adding a “flag” about the industry ban to an insurance salesperson's profile in a regulatory tool NAIC provides to states.

Notifications will be sent out beginning on July 1.

The program was first reported by the Wall Street Journal. A recent Journal study found that at least 13% of 395 brokers barred by Finra in 2013 also carried an insurance license.


The NAIC initiative, which does not require states to yank insurance licenses from salespeople with securities-industry bans, was praised by a former state securities regulator.

“Anything that moves in the direction of creating some kind of disciplinary database that deals with insurance wrongdoing would be a win for everybody,” said Steven Thomas, chief operating officer of Wealth Financial Advisory Services and a former South Dakota regulator.

The NAIC program would help prevent rogue brokers from “using regulatory loopholes” to restart their careers in insurance with a seemingly clean record, added Todd Cipperman, principal at Cipperman Compliance Services.

“Investors should know (if) the people selling them insurance have had Finra regulatory issues in the past,” Mr. Cipperman said.

The NAIC initiative also was endorsed by Joseph Borg, director of the Alabama Securities Commission, who said it would help bridge the gap between the NAIC's database and the Central Registration Depository, or CRD, which houses broker information.

“There can be better communication between the systems,” Mr. Borg said. “The push to do this is a good thing.”

The relationship between insurance and securities regulators can vary by state.


In Alabama, there's a lot of interaction, Mr. Borg said, because the state's insurance commissioner sits on Mr. Borg's board. They often trade information about brokers and insurance salespeople who have had disciplinary problems.

“That's not new to us,” Mr. Borg said. “We've been doing that for years.”

But for now, “there's no national database that crosses over” the insurance and securities industries, Mr. Thomas said. It's important to establish one because of investment trends.

“There's a lot of money that has moved out of the invested-assets world and moved into the insurance environment through annuity sales,” Mr. Thomas said.


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