Colorado reminds producers they can’t charge fees for services already compensated through commissions.
Colorado has repealed and repromulgated Regulation 1-2-9, effective May 1, 2014. Much of this new regulation is identical to the previous version. However, of note is the new Section 3, Applicability. The repromulgated Reg. 1-2-9 states that “This regulation shall apply to all insurance producers and insurance agencies over whom the Division of Insurance has authority, with the exception of public adjusters and public adjuster agencies. This regulation does not apply to the sale, solicitation and negotiation of bail bonds.”
That is important for those of us who are on the life/annuity side because the list of itemized acts for which imposition of fees is prohibited may sound more like Property Casualty. The 2014 version of the regulation makes clear it is not so limited. The new version also has definitions and includes a definition of “wholesale intermediary” as “for the purposes of this regulation, a person or organization that deals directly with a licensed retail producer and not with a consumer.”
We get a lot of questions about when fees can be charged in addition to a commission and we see many types of advertising materials that refer to charging fees without being clear what the fee is for and that there is no duplication or “double dipping.”
The “Advertisements Of Life Insurance and Annuities Model Regulation (Model 570)” and most state regulations have language that we cite to warn producers that they should not look to charging fees as an easy way to boost their income. From Section 5 of the model: “No insurance producer may use terms such as ‘financial planner,’ ‘investment adviser,’ ‘financial consultant’ or ‘financial counseling’ in such a way as to imply that he or she is generally engaged in an advisory business in which compensation is unrelated to sales unless that actually is the case. This provision is not intended to preclude persons who hold some form of formal recognized financial planning or consultant designation from using this designation even when they are only selling insurance. This provision also is not intended to preclude persons who are members of a recognized trade or professional association having such terms as part of its name from citing membership, providing that a person citing membership, if authorized only to sell insurance products, shall disclose that fact. This provision does not permit persons to charge an additional fee for services that are customarily associated with the solicitation, negotiation or servicing of policies.” (Emphasis added.)
In Colorado, this newly revised and reissued regulation provides additional guidance about what services cannot be the basis for a fee and also what must be done in the event a fee is charged. We strongly recommend that any insurance producer in Colorado who is contemplating charging a fee for services consult this regulation in addition to Regulation 4-1-2 — ADVERTISING AND SALES PROMOTION OF LIFE INSURANCE AND ANNUITIES.