Are You A Fiduciary?

There is no indication in that language that insurance agents and distributors who sell non-security insurance products would be affected. After all, they are not selling or advising on securities.

But what about dual-licensed insurance agents and distributors who sell insurance policies that are securities–e.g., variable annuities and variable life policies–as well as fixed insurance products. They would be likely be affected by the change due to their securities licensure, if they give related (and not incidental) advice. So, on the insurance side, they would be held to their state's suitability standard, and on the securities side, the federal fiduciary standard.

This is not impossible–the standards are certainly compatible–but shifting hats like this would be new for many.

What about indexed annuity agents and distributors? If SEC Rule 151A ever is adopted, it would require indexed annuities to be treated as securities. That would mean the agents and distributors who sell these products would be handling securities. If the products are sold with securities advice, the agents and distributors will likely then have fiduciary standards to consider.

Here is another challenge. A good many insurance professionals identify themselves as financial advisers. Many do this as they begin to grow their practices into full financial service firms providing products, planning and advice, and some do this even if insurance remains their main business.

If the Investment Advisers Act is amended to apply the fiduciary standard to brokers who provide investment advice, some of these insurance practitioners might find their "financial adviser" tag a bit troublesome. After all, many people believe "financial advisers" are synonymous with "investment advisers." If the advice and planning provided by the insurance-oriented financial advisors is minimal, or if they refer out advice and planning to specialists, they may not want to be held accountable to investment adviser requirements.

They–as many others–would want to know, "Do the amended Investment Adviser rules apply to me?"

They will not be alone. The Personal Financial Planning Specialty Area of the American Institute of Certified Public Accountants, New York City, recently released The CPA's Guide to Investment Adviser Registration. Why? To help members determine whether they qualify as investment advisers under SEC and state regulations.

Insurance organizations might consider following suit, especially if the proposal is enacted. A little clarity here wouldn't hurt.