Iowa insurance regulator cautions SEC about modifying suitability rule

Doug Ommen asserts the current rule is protecting investors and worries that the SEC is defining 'best interest' differently than what it means under state law

May 10, 2018 @ 2:46 pm

By Mark Schoeff Jr.

A state insurance official on Thursday asserted that current investment-advice regulations for brokers are working and that modifying them under a proposal from the Securities and Exchange Commission could hamstring state regulators.

Iowa Insurance Commissioner Doug Ommen said that the suitability rule that requires brokers to sell investment products that align with their clients' objectives and risk tolerances is protecting investors.

The SEC regulates insurance products that are considered securities, such as variable annuities and registered fixed-indexed annuities. State insurance commissioners regulate fixed annuities, unregistered fixed-indexed annuities and most life insurance.

Under the SEC's investement-advice proposal package, the agency would create a new regulation best interest for brokers designed to strength the existing standard. The package is open for a public comment period that ends on Aug. 7.

"I'm very uncomfortable with the idea that we're going to push aside what is now a history and tradition of suitability, create something new and then wait for a number of years of SEC deliberation on what that means," Mr. Ommen said at an Insured Retirement Institute conference in Washington.

The SEC proposal does not explicitly define best interest and Mr. Ommen is worried that the interpretation could conflict with state law. Iowa has a uniform prudent investor rule that requires a conservative, cautious approach to investing.

"I am concerned about using that phrase 'best interest' and having it mean something different than what it means under state common law," Mr. Ommen said.

Paul Cellupica, deputy director of the SEC Division of Investment Management, spoke at the IRI conference prior to Mr. Ommen and then listened to Mr. Ommen's session. Mr. Cellupica declined to comment as he left the conference.

During his own session at the event, Mr. Cellupica said that the SEC is seeking guidance from the insurance industry on how the its investment advice proposal should treat disclosures about conflicts of interest related to the sales of insurance products.

Mr. Cellupica also said that the SEC is looking for input on how title reform included in the proposal — which restricts the use of the term "financial adviser" — should apply to insurance representatives who sell insurance products that are regulated by both the SEC and the states.

"We're looking for feedback as to whether the prohibition on the use of the term 'adviser' in that context would pose particular problems for agents who are acting in those dual capacities," Mr. Cellupica said.

While the SEC is wrestling with its own advice-reform proposal, state insurance commissioners are continuing to work on strengthening their annuity suitability rule. The National Association of State Insurance Commissioners will meet at the end of May to further refine the proposal, according to Mr. Ommen.

"We hope to put forward a product that we can build some consensus around and then be in a position to sit down with other regulators, especially the SEC, to talk about how our state model" can be part of the advice-reform process.


What do you think?

View comments

Recommended next


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print