Iowa draws clear line for insurance agents and securities brokers

Iowa on Friday released its long-awaited regulatory guidance on how far insurance agents and brokers can go in advising clients on the suitable sources of funds for insurance products. The bulletin aims to reduce the potential for abuse when insurance agents who do not hold securities licenses offer recommendations to customers on liquidating securities to cover the purchase of an insurance product, according to Jim Mumford, Iowa's first deputy commissioner of insurance. It also deters securities-licensed brokers who don't have insurance licenses from recommending that clients surrender an insurance product to buy investments. Topics that are permissible for insurance-only agents to cover include the client's financial experience, objectives, risk tolerance, liquidity needs and tax status, along with other aspects. Agents are also permitted to discuss the stock market in general terms, including market risks and economic activities that are generally known to the public and discussed in the media. The recommendation to liquidate specific securities, along with providing advice on the securities and recommending specific allocations between insurance and securities products, are prohibited. Insurance-only agents may not complete securities forms, but can give general information to the client in relation to an existing or new annuity or life insurance product. They also may not use the terms “securities agent” or “investment adviser,” titles which denote the agent can give investment advice or can sell securities. Similarly, securities-only reps can ask about risk tolerance, financial objectives and existing assets, among other things. But they can only discuss insurance in general terms within the context of managing risks and of insurance activities that are known to the public. Reps that only carry a securities license may not discuss the pros and cons of insurance, give advice on the performance of a client's insurance policy or compare the investor's insurance policy performance with securities. They also may not recommend the liquidation or lapse of an insurance policy or the taking of policy loans.