NAIFA GovWatch

House Passes Historic Financial Services Overhaul Legislation

Issue: Financial Services Regulatory Reform

Date: December 11, 2009

Action Taken: Today the U.S. House of Representatives by a vote of 223 to 202 passed sweeping legislation, H.R. 4173, to overhaul the regulation of the financial services industry. The bill is known as the “Wall Street Reform and Consumer Protection Act of 2009.” NAIFA has for months – and in some cases years – been actively involved with Members of Congress and their staff in the drafting, amending, and providing comment and testimony on the four sections of this bill that most impact financial professionals that focus their practice on life insurance, annuities, health insurance and employee benefits, multiline, and financial advising and investments.

Four Key Provisions:

The bill establishes a Federal Insurance Office (FIO) of information to be housed within the Treasury Department. (Please note: this office has no regulatory authority). NAIFA supports the creation of a federal repository of insurance information. Currently, there is no central body of expertise at the federal level to provide advice and council to the Administration and Congress on policy matters impacting the insurance industry. NAIFA believes that such an office will fill the knowledge gap by providing a constant source of information and expertise within the federal government to advise Congress on the impact to the economy, consumers, and the industry when proposals—such as taxing the inside build up of life insurance—are considered. For more information on NAIFA’s work on the insurance information office, click here.
The bill establishes a Consumer Financial Protection Agency. Due to the work of NAIFA and our industry partners, Congress dropped jurisdiction over core insurance products and services from the scope of this new proposed new agency. The only insurance that will be included is that tied to the mortgage process (credit, title, and mortgage insurance). The bill also exempts persons and practices regulated by the Securities and Exchange Commission and state securities regulators from the scope of the bill. To view former NAIFA President Cliff Wilson’s testimony to Congress regarding the CFPA, click here. (Please note: From here, you may view both written testimony and archived footage of the hearing).
The bill establishes a federal grant program to help the states develop programs to crack down on misleading sales of financial products to senior citizens. Due to the work of NAIFA and our industry partners, the language of the bill provides incentives to the states to adopt model laws that NAIFA has worked closely with state officials to develop. Those laws include the model laws developed by the NAIC and NASAA on the use of senior specific designations and the NAIC’s Suitability in Annuity Transactions Model. For more information on our efforts on this issue click here.
Finally, the bill establishes a “harmonized” fiduciary standard of care for broker-dealers and investment advisers when either provides personalized investment advice about securities to prospects or clients. The new fiduciary standard would, if ultimately adopted by the Senate and signed into law by the President, apply to NAIFA members that are registered representatives, investment adviser representatives (IARs), and/or are their own Registered Investment Adviser (RIA). NAIFA worked closely with the House Financial Services Committee to define the fiduciary standard. The House bill includes several changes to the standard. The changes are: (1) broker-dealers and registered representatives are not in violation of the fiduciary standard simply because they are paid a commission; (2) broker-dealers and registered representatives are not in violation of the fiduciary standard simply because they only offer a limited number of products made available through their broker-dealer; and (3) the standard only applies when a registered representative or adviser provides personalized investment advice “about securities.” NAIFA also successfully opposed an effort to designate “financial planning” as a recognized profession subject to additional regulations by a new Financial Planning Oversight Board.

NAIFA is disappointed that two other outstanding requests to strike provisions in the bill were not accomplished. These are: (1) allowing the SEC to issue rules to prohibit or restrict any “compensation schemes that are deemed contrary to the public interest”; and (2) directing the SEC to issue a rule that would require broker-dealers and their registered representatives, and investment advisers to act in the best interest of a client "without regard to financial or other interest of the broker, dealer, or investment adviser providing the advice.” While these issues were not resolved in the House bill, there is opportunity in the Senate to address these concerns. View more information about these concerns here.

Next Steps: The process now moves to the Senate where Senate Banking Committee Chairman Chris Dodd (D-CT) has introduced his version of comprehensive reform legislation. The Banking Committee members and staff are currently working through the Dodd bill and are preparing for a substantive markup which could begin in late January 2010. NAIFA is working collaboratively with our industry partners at AALU and NAILBA to address our concerns with the Dodd bill and have sent two letters to the Senate outlining our concerns (see November 30 GovWatch).

To address the issue of a harmonized fiduciary standard, our collective organizations are united in advocating for a comprehensive study by the Securities and Exchange Commission—using its current statutory authority—to determine the appropriate obligations, regulations, examinations, and enforcement of brokers, dealers and investment advisers -- ultimately to ensure strong consumer protections. It is our goal to ensure that such a study would result in a fact-based approach to address real problems rather than by adopting a “one-size fits all” fiduciary standard—the need for which is unsupported by any factual findings. We believe the Senate must first fully understand the unintended consequences of such an approach which, if not addressed correctly, could prove disastrous to consumers, particularly middle class consumers, as well as financial professionals.

NAIFA Staff Contact: Jill Edwards, Assistant Vice President, Federal Government Relations

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