License Suspension

Tennessee Joins States with Advice on Permitted/Prohibited Activities Based on Licensing

In our Advertising and Distribution Compliance Department, we receive questions on this issue almost every day. Having guidance on what an “insurance-only” producer can and cannot do from the states is very helpful in framing those discussions. Tennessee now joins the small number of states providing that guidance in their Bulletin dated May 22, 2013, titled: Licensing and/or Registration Requirements and Permitted Activities.

Tennessee’s guidance is very similar to that first offered by Iowa in that the list of permitted activities clearly and explicitly includes the items that must be discussed to complete the suitability forms now mandated in most states and carriers.

From a producer’s perspective, some of the most important and difficult issues are raised in the following statements from the Tennessee Bulletin:

“In his or her general discussion about the expectations of the funds being considered to purchase the annuity or life insurance, the Insurance-Only Person may discuss: that the funds need protection from market risk; that the tax status of the funds and that tax deferral needs to be utilized or maintained; that the funds may be needed to provide a lifetime income stream; that the funds need to earn a guaranteed interest rate; or that there are other funds available during the surrender period of the annuity or life insurance for emergency or urgent needs and where those funds are located….”

This statement is completely reasonable, but in practice it puts the Insurance-only producer in the difficult situation of identifying assets that could fund an insurance product but then having to send the prospect elsewhere to liquidate them. That is a tough thing for anyone in sales to do, even if they know it is the right thing to do. As a result, in practice, there is a lot of pressure to find a way around these rules and we have often heard that no insurance producer has ever been disciplined for this type of source of funds issue. I am hopeful it won’t take such regulatory action to achieve widespread compliance, but it might. The Bulletin notes that the penalties could be license probation, suspension, and revocation, as well as fines of up to $10,000/violation.

For any producers operating on the assumption that this will not be enforced, I encourage placing a call to the Tennessee Insurance Department. Our opinion is that the DOI put the bulletin out because they are concerned about these issues and that operating on another assumption puts one’s livelihood at risk, not to mention one’s savings.