VA guidance is responsibility of reps: Compliance experts
As life insurers alter variable annuity contract language and implement other changes to escape from their large VA…
As life insurers alter variable annuity contract language and implement other changes to escape from their large VA liabilities, compliance experts are stressing that suitability rules apply and representatives are ultimately responsible for the guidance that they give clients.
Insurers such as Axa Equitable Life Insurance Inc., The Hartford Financial Services Group Inc. and Transamerica Life Insurance Co. have instituted programs to buy out clients' VA benefits in exchange for a higher account value. Others have tried to limit their VA liability by cutting off additional contributions to contracts that have already been purchased or by nudging clients to reallocate their investments to options with less risk and less return.
B-D REPS ON THE HOOK
Although the methods that insurers use are the domain of insurance regulators, broker-dealer reps are on the hook for what they tell clients to do next, panelists said at the Insured Retirement Institute's Government, Legal and Regulatory Conference in Washington last week.
The Financial Industry Regulatory Authority Inc.'s Rule 2111, the suitability rule, applies when reps make a recommendation, even after the initial sale.
“If the rep says, "Yes, you should take the buyout,' or "No, you shouldn't,' or if they suggest that the client put in more money before the insurer cuts off [subsequent premiums] — that brings in suitability,” said Thomas J. Christel, lead senior regulatory specialist of member regulation at Finra.
Even a suggestion that a client keep an old VA contract instead of taking the buyout is technically a suggestion that the client “hold” the investment, and should be documented, Mr. Christel said.
“It's not a great position and it's frustrating,” said David B. Moskovitz, a senior vice president at RBC Wealth Management. “But you have to care for the client. Clients put their trust in you and you have to follow through.”
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