Update: NAIFA Members Respond to SEC Proposed Rule 151A

The SEC recently issued a proposed rule that would result in most indexed annuities being classified as securities. The proposal would accomplish this by creating a new Rule 151A that would change the treatment of indexed annuities under the insurance products exemption found in Section 3(a)(8) of the Securities Act of 1933. If the proposed rule is adopted, the SEC and FINRA would have authority over indexed annuity sales, and someone who wishes to market/sell indexed annuities will need a series 6 or 7 securities license. An insurance producer license, by itself, would no longer be sufficient. 
 
Although NAIFA strongly believes that people who engage in unscrupulous or misleading sales practices should be aggressively prosecuted and subject to appropriate and meaningful sanctions, NAIFA has taken the position that indexed annuities should not be classified as securities and therefore opposes proposed Rule 151A. NAIFA is also concerned that the specific language used in the proposed rule is not limited to indexed annuities and could extend the rule’s coverage to other annuities and insurance products.

NAIFA’s position is based in part on the fact that, while issues of suitability and marketing practices are legitimate areas of concern, these concerns are not the criteria that should determine whether a financial product is or is not a security. In NAIFA’s view, indexed annuities do not meet the established test for determining that a product is a “security.” An insurance product that does not meet this test should be regulated by state insurance departments and should not be under the jurisdiction of the SEC or FINRA. This is an important principle which must be preserved in order to protect the appropriate regulation of all insurance products.

NAIFA members have responded in force to the GovAlert issued by NAIFA on August 27, 2008 asking members to submit comments to the SEC on this issue. Of the more than 2,500 comment letters received by the SEC, over 1,000 were from NAIFA members, equal to approximately 40% of the comments submitted and the largest single source of comments sent on this issue. Once again this demonstrates NAIFA’s power and potential impact as the organization representing the interests of agents and advisors. NAIFA also expressed its organizational views to the SEC in a comment letter submitted on September 10, 2008. NAIFA’s letter can be reviewed under the “What’s New” section of NAIFA’s web site at www.naifa.org.

NAIFA Staff Contact: Gary Sanders, Vice President – Securities and State Government Relations at 703-770-8192.