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IMSA Suitability Summit: SEC Reps identify 10 Hot Topics

Last week I attended the IMSA/AARP Suitability Summit, held in Washington, DC.  In attendance were a well-represented group of regulators, both state and federal, trade associations, consumer representatives, industry representatives, and IMSA Qualified Independent Assessors.

The discussion was open and, I think, helpful to all who were there.

The two SEC representatives, John Fahey and John Walsh, Branch Chief and Chief Counsel, respectively, while providing the usual disclaimer that the views were theirs and not the Commission’s, presented 10 Hot Topics:

1) Annuity Suitability: They identified two components of this concern: inadequate policies and procedures at the selling firm and when policies and procedures are adequate, a failure to implement or follow those policies.

2) Supervision: Here the quality of training was a particular concern.

3) Trend towards more vanilla products.   They raised the question of what impact this will have on exchanges.  More bells and whistles have often been the rationale for exchanges and if the newer products have fewer, will there be fewer exchanges too?

4) Sales to Seniors: Here they specifically identified the need for the use of exception reports and supervisory action when there is a disproportionate number of sales to seniors.

5) Free Lunch Seminars:  Because these appear to be very successful sales tools, it is important to continue to monitor these for abuses.

6) Life Settlements: Generally, the applicability of securities laws was identified and specifically, excessive commissions was noted as a concern.

7) Exchanges/Replacements: The speakers noted that those looking to take advantage do not stay within the clear regulatory silos of fixed and variable products or insurance and securities, so regulators must also be able to work together and move outside those silos. For example, the SEC is moving towards the position that if one part of the exchange transaction involves a security, the Commission can act to enforce their rules.

8) Insured Principal Products: Here the focus of sales of the product is safety.  The SEC is interested in the portfolio insurance as the basis for the safety and guarantees.

9) Benefit of the Bargain: The question here is whether the conditions required for the guarantees to be effective are adequately disclosed.

10 Product and Sales Guidelines: Are these strictly defined and enforced?

This last topic seems to bring us full circle back to the initial topic of suitability because it looks at things like whether a product limiting issuance to individuals above a specified income is actually sold, when files are reviewed, to individuals with lower incomes than that required amount.  This discussion was not limited to annuities though, which is probably why it was its own topic rather than being included as part of the first in this list.