Groups Move to Support Advisor in Annuity Switching Case

The brief added: "To be sure, defendant Cutter Financial Group … is registered with the SEC as an investment adviser, and the SEC alleges that this "dual registration" capacity provides it with "jurisdiction to bring these claims."

But the brief went on to say the defendants argued in their motion to dismiss the amended complaint that the SEC's allegations failed to establish jurisdiction.

The SEC's position could inflict harm "on the very people it purports to be protecting: investors," the brief said. "The fact that Defendants operate subject to two independent regulatory regimes does not mean that either regulatory body may claim jurisdiction over every transaction on which the Defendants provided advice."

The brief went on to argue: "Some investors may elect to receive advice and assistance in connection with insurance product transactions from intermediaries registered as insurance agents but not to the regulatory obligation imposed on 'investment advisers' under the Investment Advisers Act of 1940."

However, the brief argued: "The SEC's allegations in this case, if permitted to stand, would improperly reduce or foreclose that option for investors."

Another Take

Separately, Nicolas Morgan, a partner in the litigation department at law firm Paul Hastings's Los Angeles office, said: "By the SEC's own admission, the Cutter case is about insurance products and a state-licensed insurance agent. The SEC has long sought—and long been denied—jurisdiction over insurance products such as fixed interest annuities (FIAs)."

The case should instead be "addressed by state insurance regulators, if at all," argued Morgan.

He also pointed out: "The SEC itself has recognized in another context (Reg BI) the adverse impact on investor choice that occurs when investment advisor fiduciary standards are imposed over non-IA intermediaries such as brokers, or, in the case of Cutter, licensed insurance agents."

Allowing the case to go forward "would present the same risks to investors:  a significant reduction in retail investor access to different types of investment services and products, specifically insurance products such as FIAs," according to Morgan.

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