You plan to invest in an annuity through an insurance agent.
Today, the agent can take your investment as long as it’s suitable for you.
But should the agent be allowed to accept the investment only if it meets a higher standard as the best possible use of your money?
That’s an issue headed for debate in Congress, and a Nebraskan who heads a national group for insurance agents and financial advisers said Friday that the resulting decision could affect thousands of middle-income Nebraskans and Iowans who want to protect their families financially.
It’s important, said Terry K. Headley, for Congress and government regulators to reach a compromise that will allow middle-income families to continue managing the risks in their lives through reasonably priced annuities, mutual funds, college savings, retirement plans and other investment products — a practice that he said could be threatened by a change in federal regulations.
Headley, a financial and investment adviser whose office is in La Vista, is president of the National Association of Insurance and Financial Advisors, a 50,000-member group that includes about 1,200 members in Nebraska and 1,100 in Iowa. The Nebraska affiliate held its annual convention this week at the La Vista Conference Center.
Headley and Susan Waters — CEO of the association, based in Falls Church, Va. — spoke at the convention and in an interview.
Besides affecting consumers, they said, changes being contemplated in Washington could restrict the careers of thousands of financial agents and advisers.
Last year’s Dodd-Frank Wall Street Reform and Consumer Protection Act authorized the Securities and Exchange Commission to install rules that could require people offering personalized investment advice to follow a “fiduciary standard,” which means that any advice and sales would have to be in the customer’s best interests, above all.
Past abuse of consumers was a major reason for the proposed change.
That portion of the Dodd-Frank Act, Headley said, is an effort to combine two groups of financial experts: those governed by a 1934 law on investments and those governed by a 1940 law on financial products.
While that sounds good, Headley said, the reality is more complex.
The divisions between the two already are fuzzy because some individuals sell many types of financial products, from simple life insurance to sophisticated investments. But, in general, there are two categories:
>> The financial adviser, who is paid a fee for advice that’s intended to be in the customer’s best interests, subject to a fiduciary standard.
>> The agent who sells “suitable” financial products in return for commissions.
For example, an agent employed by an insurance company could sell a “suitable” annuity to a customer who doesn’t necessarily meet a fiduciary standard because the customer might be able to find a better annuity elsewhere.
The SEC, by a 3-2 vote of its commissioners, recommended to Congress that the fiduciary standard be applied broadly to investment products. Congress is due to hold hearings soon on the recommendation.
David Massey, president of the North American Securities Administrators Association, which represents state securities regulators, said the proposed rule would help protect investors.
“State securities regulators routinely see the financial devastation caused when the interests of investors do not come first,” Massey said in January, when the SEC issued its recommendation.
The fiduciary standard should apply to “all who provide investment advice,” he said.
Headley agrees that consumers should be informed about the products they buy, including the payment methods received by the agents or advisers.
But Headley’s group wants a narrower use of fiduciary standards, arguing that medium-income people are best served by agents who can provide suitable financial products and are paid through commissions. More than half of the clients of association members have household incomes below $100,000, and three-fourths have household incomes below $150,000.
Financial advisers, who are paid through fees for their advice rather than sales commissions, tend to work only for higher-income people, especially those with $250,000 or more to invest, he said.
If Congress and the SEC decide to apply a fiduciary standard broadly, he said, middle-income people would have fewer affordable choices to manage their financial risks and could face much higher costs. “The broader it is, the greater the impact on the American public,” Waters said, and could restrict financial products, too.
Headley said the ultimate outcome might be a system of rules that starts with a basic suitability standard for financial products and then, as the products become more investment-oriented, imposes a fiduciary standard.
Contact the writer:
402-444-1080, steve.jordon@owh.com
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