Why I think FINRA is behind it

[djs]

I could care less what the SEC thinks because I am not even addressing them. I've bypassed them and have courted help from our elected officials.

Maybe we should not allow seniors to own mutual funds, FIA's, secondary market mortgages, etc. Only allow them to get CD's or passbook saving rates on their money. That would take care of it. Now with the real rate of inflation at a much higher rate than the phony CPI Index, the seniors would be taking a bath with CD's and passbook savings rates.

You must be joking when you say you don't think the SEC wants to wrestle power away from the States. Have you been living in a cave for the past 30 years? On many levels the Federal government has been wrestling power away from the States. Why would you think the SEC isn't headed in the same direction. They currently want State RIA's to come under the FINRA umbrella. Why not insurance?

You talk about exposed as if agents aren't skilled enough to use risk management. If an agent isn't time stamping and making a memo of every phone call, documenting, documenting, documenting, even under the SEC rules they will find trouble.

Now if the SEC wants to start pushing for an alternative SRO, other than FINRA, I'll jump on their band wagon. An SRO that isn't actively managed and run by the major brokerages would go far in opening up competition.

It's clear you don't like FINRA or the SEC. I'm curious, rather than ignoring the problem, what would you propose as the solution?

There is little doubt that EIA's are being marketing incorrectly. It's not about ignoring the problem, but somewhere there has to be a solution. SEC/FINRA is one possibility, though I get the sense that most would prefer a different solution (including the SEC & FINRA).

It's easy to say don't do this, but that statement requires an alternative.

And yes, Lazy Boy's should be regulated when sold to seniors too!!! Actually, I'm okay with telling people that they have to do their own due diligence, but it needs to conform to similar standards across the board. You shouldn't allow an EIA person lose with statements like it's the next 'BIG' thing, when those who have other regulated investments can't say similar things.

Dan

 

[URDRWHO]

Just curious about this but which insurance companies and their products were EIA's in segregated accounts?

Today I talked with NAIC, Washington DC. The gentleman said they are working on a position paper to send to the SEC but he feels we are on the same page on this issue.

It was my failure to lump FINRA, the SEC and others into the power grab scenario. Because they are all political animals it is not possible to tell who initiates what and when.

When I read

Finra is overreaching, some say - InvestmentNews
"Executives of the financial services industry are asking how much power the Financial Industry Regulatory Authority Inc. should have after it proposed rules that would require broker-dealer principals to supervise insurance and investment advisory services more closely.

Under existing regulations, broker-dealer supervisors don't have to oversee non-brokerage activities.

The proposal, however, has opened the regulator to charges that it is overreaching.

The rule change is unnecessary because insurance commissioners "require all kinds of suitability and disclosure and licensing" for insurance products, said Mr. Wilson, who is also on the NAIC life insurance committee. Moreover, insurance regulators have been working with securities regulators to create matching regulatory systems.

Finra is attempting "to make new rules and impose new rules," said a chief regulatory officer with a broker-dealer firm who declined to speak for attribution. "For [Finra] to say they want to know about my fixed-insurance business is overreaching."

I remember NASD rules for letterhead office stationary stated that certain size fonts needed to be used on the letterhead. So many inane rules that never had anything to do with stopping the real criminals.

:.:.: Advisor Freedom Blog - TEN REASONS WHY FINRA SHOULD NOT REGULATE RIA's:.:.:
"There are a number of reasons why FINRA does not need to extend it's reach into the independent RIA industry "

I guess too clarify my point would be to say that FINRA (was NASD) are the ones that are making roads into other businesses.

I found that working with State Securities Commissions was a very comfortable experience.

When EIAs were first introduced (in general accounts), I called the SEC to ask if they knew about EIAs. The branch office chief for insurance told me, "Yes, they're all filed with us." I said, "No, they're not. I have a couple on my desk. Would you like to see them?" He declined.

A week later, I called to follow up (and to get a copy of their 1986 Federal Register release). He said, "I've discussed this with my supervisor; some of them might be exempt." It was clear they had other priorities, like snakes selling scams involving underwater beachfront property.

The SEC had a golden opportunity to regulate viaticals when they first became popular. Viaticals were marketed to many people as the new high-return low-risk investment. The SEC consistently declared that viaticals were the domain of insurance regulators (who had no basis for viatical regulation).

I've worked with a number of state securities regulators through the years. They were always happy to discuss both registered and non-registered insurance contracts. But in every case, they continually tried to postpone any action, because they had neither sufficient interest nor understanding to pursue it.

The SEC doesn't have staff, budget, or knowledge to regulate insurance. The proposed rule defers reporting to the states, and pretends that past EIAs need not be addressed. That's hardly a power grab.

 

[URDRWHO]

First I would need to accept your premise "There is little doubt that EIA's are being marketing incorrectly" but I don't at this point. If someone wants to give me solid studies or numbers I am apt to change my mind. I have previously said that all areas of business have bad apples. Insurance doesn't hold the loving cup on unethical behavior.

The solution you seek doesn't even exist in the world of securities regulation, a level playing field. The problem is that not all clients think the same, act the same or expect the same level of service.

There are so many laws on the books now, if a government entity wants to get you...they can get you. Currently there are 4,450 Federal Criminal laws and it wasn't that long ago that maybe 2 dozen existed. Use a pseudonym on myspace can land you in jail for 5 years. Laws and more laws is not going to make anything more ethical.

Meanwhile the unethical people continue going about their business as usual but the ethical are paying dearly. When you make broad laws and give away powers, you can be darn sure those powers will be abused at times. So my thing with FINRA is....who oversees FINRA. When FINRA calls you up....you have no rights.

I know that the FIA's that I did came with a type of suitability sheet. It was comparable to the one for new accounts that I would give broker dealers. Your assets, reasons for doing what you are doing, etc. The same with the B/D new application profile, a client expectation and needs can and will change. So if someone gets an FIA this year, two years from now their needs may change. The money they never intended to touch may now be needed and could come with a surrender charge. An unintended consequences and really nobodies fault.....its just life. Things change.

So outside of making the client aware of the pros and cons of the FIA, there isn't much to be done. Personally I like FIA's. In the long term will equities out preform an FIA? I would say yes. But is there room in a portfolio for safety? After two boom and bust periods in quick succession, I think the go-go-all-out-return-expectation people might say yes.

It's clear you don't like FINRA or the SEC. I'm curious, rather than ignoring the problem, what would you propose as the solution?

There is little doubt that EIA's are being marketing incorrectly. It's not about ignoring the problem, but somewhere there has to be a solution. SEC/FINRA is one possibility, though I get the sense that most would prefer a different solution (including the SEC & FINRA).

It's easy to say don't do this, but that statement requires an alternative.

And yes, Lazy Boy's should be regulated when sold to seniors too!!! Actually, I'm okay with telling people that they have to do their own due diligence, but it needs to conform to similar standards across the board. You shouldn't allow an EIA person lose with statements like it's the next 'BIG' thing, when those who have other regulated investments can't say similar things.

Dan

 

[JMO Fan]

Why I think FINRA will win

18 months to get securities educated, licensed, and have prospectuses ready.

A.M. Best Comments on Securities and Exchange Commission's Proposal to Regulate Indexed Annuities as Securities
OLDWICK, N.J.--(BUSINESS WIRE)--... SEC ... would ... require the registration of newly-issued indexed annuities as securities. ... Such a change would result in a clear mandate for the Financial Industry Regulatory Authority (FINRA) to supervise indexed annuities and those who sell them. ....

As currently proposed, the final rule would take effect 12 months after publication in the Federal Register. ... implementation is unlikely to be earlier than the beginning of calendar year 2010. ... both the timing and content of the final rule could be materially influenced by the lobbying and legal efforts of various industry constituents ....

... A.M. Best does not anticipate any immediate rating actions .... it may not be practical or cost effective for indexed annuity writers to get enough of their agents registered in order to maintain sales at current levels.

...A.M. Best’s longer-term view is more guarded—particularly for those companies heavily committed to this business.

http://insurancenewsnet.com/article....0600f0768b83a2

 

[URDRWHO]

Re: Why I think FINRA will win

Yes, I too read the comments on the SEC site. Some are prudent and some are pure drivel.

One thing for sure....this will be a big, big cat fight.

Prospectus ...yes that will solve everything because we all know that people read those bureaucratic things.

18 months to get securities educated, licensed, and have prospectuses ready. http://insurancenewsnet.com/article....0600f0768b83a2

 

[JMO Fan]

Re: Why I think FINRA will win

Yes, I too read the comments on the SEC site. Some are prudent and some are pure drivel.

One thing for sure....this will be a big, big cat fight.

Prospectus ...yes that will solve everything because we all know that people read those bureaucratic things.

I agree -- including the sarcasm on the prospectus. Long ago, when I worked for a different state insurance dept, I had to review variable annuities. I told the mail clerk to take the prospectuses out of those filings and put them in a drawer where I never had to see them.

I'm not sure how much securities registration will help, but right now the state insurance depts are inundated with consumer complaints about poor disclosure on EIAs. Prospectuses might protect sellers more than consumers. But at least then brokers can prove consistent disclosure.

Regardless, I think the choices at this point are either to register EIAs or repeal federal securities laws. That's why I think the proposed rule will be finalized. It will change EIA markets -- I hope for the better, but I realize that (unlike the EIA interest credit ) there is a downside to increased regulation.

 

[xrac]

Drudge has headlines such as this today.........

<FRIGHT OF THE FINANCIALS...

Fed eyes extending emergency loans for Wall Street...

MORTGAGE MESS: FREDDIE, FANNIE Plunge on Speculation Firms May Need to Raise $75 Billion...

...home loan titans at risk?>

With such loses taking place on Wall Street I think the bigger wirehouse member firms have bent the ear of FINRA and NASAA asking them to put the pressure on the SEC. Wall Street sees the future of baby boomer's moving even more money from the equities markets. So the wirehouses want:

1. FIA's to be "their" product
2. IF they control FIA's they can control, slow down the movement out of equities.

When you read that the SEC feels that benefits outweigh the increasing costs, loss of revenue and diminished competition, my question is...."benefits who?" I don't think Econ 101 ever teaches that increased costs, loss of revenue and diminished competition is ever good for the buyer of the product.

Therefore I say it benefits:

1. Big wirehouses
2. FINRA

Summary of SEC Proposal to make Index Annuities Securities - 7/2/2008 - insurancenewsnet.com
By Jack Marrion

"In any event, the proposal says it would enhance investor protection, because index annuities would be regulated by FINRA and sold by registered representatives. The proposal also asks whether the securities treatment should be extended to index life insurance or any fixed insurance product using a market value adjustment.

SEC notes that this proposal will have costs and could result in a loss of revenue and diminished competition, but that the benefits outweigh the costs. SEC is accepting comments of the proposal until Sept. 10 and the proposal will be effective for all index annuities sold one year after adoption."

URDRWHO, you are spot on. This thing of protecting seniors is all a smoke screen. This is the real issue!

 

[URDRWHO]

Re: Why I think FINRA will win

You picked up on my sarcasm? You mean I was so transparent.

I talked with my State Insurance commissioner's legal department today. They receive complaints about FIA's but it is not the major flood we are led to believe. My State (it is a big State) is in the process of putting together a negative letter for the SEC rule.

On Monday I have a meeting with a State representative and I hope to use his lead in who and how to contact Federal Representatives. I want to find out a few things such as:

1. Did any major wire house approach FINRA or the SEC about this matter?

2. Who first gave Dateline the idea to do a show?

3. If Wire house's did approach FINRA or the SEC, when was it?

Hopefully my State Rep can help me figure out how to find out the above answers. If this truly is a political, power play (which I think it is) pulling off the covers could bring issues to the media such as, the SEC bends to the will of Wall street. Hey I like that headline!

Even though at the moment I have some heart problems (yea I'm at that age) I will not let the Wall street bulldozer run me down without a fight.

My sale of FIA's is minimal but it is the point of the matter.

I also suggest that people contact State Securities Commission people. Back when I was a State RIA the State Security Commissioners were not very happy with proposals coming from the Fed.

If ye love wealth better than liberty, the tranquility of servitude better than the animated contest of freedom, go home from us in peace. We ask not your council or your arms. Crouch down and lick the hands which feed you. May your chains set lightly upon you, and may posterity forget that ye were our countrymen - SAMUEL ADAMS

I agree -- including the sarcasm on the prospectus. Long ago, when I worked for a different state insurance dept, I had to review variable annuities. I told the mail clerk to take the prospectuses out of those filings and put them in a drawer where I never had to see them.

I'm not sure how much securities registration will help, but right now the state insurance depts are inundated with consumer complaints about poor disclosure on EIAs. Prospectuses might protect sellers more than consumers. But at least then brokers can prove consistent disclosure.

Regardless, I think the choices at this point are either to register EIAs or repeal federal securities laws. That's why I think the proposed rule will be finalized. It will change EIA markets -- I hope for the better, but I realize that (unlike the EIA interest credit ) there is a downside to increased regulation.

 

[xrac]

Re: Why I think FINRA will win

.....If ye love wealth better than liberty, the tranquility of servitude better than the animated contest of freedom, go home from us in peace. We ask not your council or your arms. Crouch down and lick the hands which feed you. May your chains set lightly upon you, and may posterity forget that ye were our countrymen - SAMUEL ADAMS

Love that quote! Thanks!

 

[xrac]

Re: EIA Securities Registration Advantages

Benefit to consumers: More consistent, compliant, & complete disclosure

Benefit to sellers: More consistent documentation of suitability, defense against discontent

Benefit to companies: Clearer compliance requirements, level playing field

Benefit to all: Stronger, suitable sales => better persistency

Benefit to non-EIA buyers: separate account => no diversion from general account to EIAs

Just received my email of on Wall Street Online. They have 13 highlighted headlines. Here are six of those headlines:

Credit Suisse Brokers at Heart of Federal Probe

First-Half Losses for Hedge Funds Leads to Second-Half Worries

Jefferson Co. Fires Merrill, Two Others

Bernanke in Strong Push for I-Bank Curbs, Bigger Fed Role

SEC Finds Conflict of Interest at 3 Major Credit Rating Shops

Legal Problems Mount for Bear Stearns Hedge Managers

My point is that the SEC and FINRA compliance doesn't create a financial world without problems or risks. Based upon the issues I have observed in following financial markets for 25 years I think I can honestly say that more and bigger problems have always came from the more highly regulated registered reps side then from the insurance people side. Making FIA securities will not prevent someone from figuring out how to separate a fool from his money.