Proposed Legislation for a Fiduciary Standard on Life Insurance Professionals

There are critical threats to life insurance practitioners and other financial professionals as the House Financial Services Committee is slated to vote on the Investor Protection Act.

As proposed, the Investor Protection Act authorizes the SEC to make and enforce rules imposing a "harmonized" fiduciary duty for brokers, dealers, and investment advisors in providing personalized investment advice to act in the best interest of retail customers without regard to the financial or other interest of the broker, dealer or investment advisor who is providing the advice.

Industry Positions

The Association for Advanced Life Underwriting (AALU), strongly opposes a one-size fits all fiduciary standard for all investment advisors and broker-dealers. AALU believes it is a clear fact that life insurance producers and other commission-based salespeople cannot have a fiduciary duty to parties on both sides of a transaction-to customers who purchase life insurance products and to carriers and other securities manufacturers with whom they contract and for whom they work. Former MDRT President Tony Gordon has outlined in detail the devastating impact this had on producers, as well as the harm caused to consumers, when it was implemented after limited resistance from the producer community in the U.K.

The National Association of Independent Financial Advisors (NAIFA) agrees that the one-size fits all approach over-reaches in addressing the problem of consumer confusion, and fails to recognize the inherent differences in the process of selling advice for a fee as opposed to selling financial products.

However, NAIFA and the American Council of Life Insurers (ACLI) believe a fiduciary standard is workable as long as the SEC carves out exceptions for certain relationships, taking into account the differences in distribution channels. AALU, on the other hand, believes that allowing the SEC the power to create a fiduciary standard is all too risky and, with the appetite to regulate, could lead to damaging effects for the life insurance professional.

Those who wish to learn more about this issue and actions that can be taken click here. The many regulatory and legislative issues facing the financial services profession were presented during a panel discussion featuring Sarah Spear, JD, LLM, from AALU, Russ Childers, CLU, ChFC from NAHU and Cliff Wilson, CLU, ChFC from NAIFA at the FSP Forum in Phoenix, Arizona, on October 28, 2009.