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HOST: Welcome to the NAIFA Advocacy Podcast, the broadcast about important legislative issues affecting insurance and financial services industry. I’m Magenta Ishak, Director of Political Affairs for NAIFA. As you may know, several recent newspaper and TV news reports have alleged that some insurance and financial advisors are using misleading professional designations to gain access to elderly Americans and encourage them to purchase unsuitable financial products.
The allegations are potentially damaging to NAIFA members because they could easily compromise the public’s trust in insurance agents, especially those who sell annuities to retirees. Today we’re speaking with Gary Sanders, Senior Counsel for NAIFA, and Jill Edwards, Director of Federal Government Relations at NAIFA. Jill, can you start by giving us some background on the issue?
JILL EDWRDS: Happy to. Thank you, Magenta. Basically, some of you who are listening may or may not be aware that there have been some recent major media allegations that, specifically using the term “insurance and financial advisors”, that’s the term they’ve used, are basically duping senior citizens into purchasing unsuitable products which are usually annuities. These stories have been run front page New York Times on a Sunday, which gets a lot of readership as many of you know, there have been front page Washington Post and it’s gotten a lot of attention.
The State Securities Regulators and the Securities and Exchange Commission have been extremely active on this issue and the Senate Aging Committee has taken notice and held a very popular hearing on September the 5th of this year. I can tell you in all the years that I’ve been lobbying Washington and lobbying the Aging Committee, I have never seen a more crowded hearing. This is something that has gained substantial attention by legislators, regulators and the press. And with that response, NAIFA is not doing a service to its members.
HOST: So, Gary, what has been NAIFA’s response?
GARY SANDERS: NAIFA’s been on top of this issue from the start. NAIFA’s Policy Formation Subcommittee, which is our subgroup of the Government Relations Committee that initially considers and determines the policy on issues, held two meetings on this and just about two weeks ago NAIFA’s board considered this issue and adopted a motion on it. Basically, where we came down is that we support the enactment of legislation, which would have the states adopt legislation that creates a structure, and a system for determining what designations and what certifications would be entitled to what we call a “safe harbor”.
That would basically mean that any designations on that list, somebody (inaud.) them, would be protected against claims brought against that person based upon the misleading use of the designation. In order to achieve uniformity in what the states do, we also support having the NAIC, which is the National Association of Insurance Commissioners, and the State Securities Regulators who are called the North American Securities Administrators Association work together to develop a model legislation for the adoption by the states.
And in order to encourage the states to take action on this, the NAIFA position also encourages the Congress to enact legislation basically providing that if the states don’t act by a certain date or some reasonable time in the future, then either the Treasury Departments, another federal agency or a federal self-regulatory organization would be directed by the Congress to develop a list of designations and certifications that would be entitled to this safe harbor.
HOST: Why doesn’t NAIFA develop a list of endorsed candidates?
GARY SANDERS: NAIFA could take the easy route, I guess, and develop its own list of what’s good and what’s bad, what people can use, what they can’t use. Such a list, of course, wouldn’t be binding on anybody because NAIFA’s not a governmental entity or organization. But there are a couple problems with this. The first is possible anti-trust problems for NAIFA, second is possible First Amendment problems under the U.S. Constitution which guarantees the right to free speech.
Beyond that NAIFA believes we need a real coordinated effort to really address this. That’s why over the past couple weeks we’ve been meeting with our industry colleagues at AALU (ph.), EACLI (ph.), the American College and with various state and federal regulatory—regulators and legislators such as the NAIC, the State Securities Administrators and the staff of several Senators on the Senate Aging Committee.
HOST: Jill, isn’t the issue really whether a particular sale is suitable regardless of the seller’s designations?
JILL EDWRDS: Well, we certainly think so. I mean, ultimately, it doesn’t matter what your designation is because the designation doesn’t make the agent. What makes the agent is whether or not it is—is the level of service that they’re giving to their client and whether or not they sell them a suitable product. But, unfortunately, we’re in a situation right now where the media and the Congress are deciding what the issue is.
And all they—although they agree that suitability’s obviously a key component of it, they believe that the designations are basically creating a—an open door and sort of, I guess, reeling seniors in, you know, because of these designations that sound good and sound like they have a level of expertise that may or may not actually exist. And so basically our regulators and legislators are trying to crack down on that component and we are simply being responsive to that side of it. But suitability, obviously, is a major issue and NAIFA’s been doing a lot of work on that.
HOST: What exactly is NAIFA doing about suitability, Gary?
GARY SANDERS: Plain and simple, NAIFA supports suitability in the sale of all annuity products. And, as Jill stated earlier, most of the problems in this area involve either deferred annuities, index (ph.) annuities or some type of annuity product. Beyond our flat out support for suitability and the sale of annuities, NAIFA also supports the adoption of two NEI—NEIC models, the suitability and annuities transactions model regulation and the disclosure and annuities transaction model regulation, which are designed to make annuities transaction more transparent and help ensure that the sales to the people, and not just seniors, to all consumers, under the model regulation are suitable.
Currently somewhere in the neighborhood of around 35 states have adopted each of these NEIC models. In the next couple of months NAIFA is going to be making a big push along with the ACLI (ph.) to encourage our state associations to encourage their legislators and regulators to adopt these models in the upcoming session.
HOST: So, Jill, what are the prospects for the NAIFA proposal?
JILL EDWRDS: Well, we’re in the early stages. I mean, you have to think of a few things. I’m sure many people listening to this podcast right now are thinking, well, why don’t we just go to the National Association of Insurance Commissioners and get them to adopt something. The problem is that the NAIC’s work has all been done on the suitability side of the equation and very little has been done on this allegations of being—of misuse of designations.
The folks who are doing all the talking right now are with the Securities and Exchange Commission. Christopher Cox, who’s the Chairman, has been doing all of the talking and they held a senior—Second Annual Senior Summit recently that NAIFA attended. The State Securities Regulators, the state AGs in Minnesota and in Massachusetts have all been very, very active on this. The insurance commissioners have been fairly (ph.) quiet. So what NAIFA’s been doing, and Gary mentioned this earlier, we’ve been meeting with the State Securities Administrators, we’ve been meeting with the NAIC, we’ve been meeting with our company counterparts at the American Council of Life Insurers.
And what we’re trying to do right now in these early—in this early stage of this process is to get all the players on board, because what we ultimately don’t want to happen is for, for instance, an NAIC model act (ph.) to be adopted in all 50 states and then the State Securities Regulators not even recognize it. We want everyone involved to recognize what list of designations has a safe harbor and which designations do not. And that way we eliminate a lot of the confusion that is going on right now and you get all the relevant regulators and legislators on board to where this issue does not continue to haunt us in the press.
HOST: Why should NAIFA members care about all this? How exactly could it affect their business?
JILL EDWRDS: Well, I think it’s pretty simple. If the press is saying that insurance and financial advisors are duping seniors, it doesn’t matter how many—you know, how many folks are actually engaged in this alleged practice. It affects everyone because a bad reputation spreads very quickly and ultimately it’ll result in probably fewer sales and—and—and a complete mistrust in the public in our profession.
HOST: So, Gary, now that we know more about the issue and the impact it could have on the industry, what can NAIFA members do?
GARY SANDERS: I think there are several things that a NAIFA member can do on this matter. First, I think when they meet with their clients; they can discuss what their designations actually mean. They can talk about the course of study they had to go through, the type of test they took, answer any questions your client may have. Second, always focus on suitability. As Jill said, I think the real issue here really is suitability. The bottom line is if a product’s sold to somebody as suitable, I doubt you’re going to hear many complaints about the designation used by the person selling the product.
So always go over with a fine-toothed comb the financial condition of your client, all the other normal indications you use to determine whether a product is suitable or not. If you’re asked by a legislator in your state, or a regulator, what—what—you know, what you’re doing about this issue, what your association is doing, tell them that NAIFA is working hard on this issue and is working on many different fronts on this. If you need to, refer them, of course, to either myself, Gary Sanders, or to Jill Edwards at the NAIFA Law and Government Relations Department for any further information they may need.
HOST: Thanks, Gary. Thanks, Jill.
JILL EDWRDS: Happy to be here. Thank you.
GARY SANDERS: Thanks Magenta. Always a pleasure.
HOST: NAIFA and AHIA encourage you to learn more about SCHIP and how it will affect your business. For more information on SCHIP log onto AHIA's website at www.ahia.net and look in the Take Notes section.
[This 2007 podcast is a copyrighted production of the National Association of Insurance and Financial Advisors. All rights are reserved.]
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