By Steven A. Morelli
Senior Editor, InsuranceNewsNet
December 14, 2009
The U.S. House of Representatives cut some aspects of the Wall Street Reform and Consumer Protection Act that would have had an adverse impact on insurance producers and investment advisors before passing the bill on Friday.
The House took out some parts of a provision that would have put all investment advisors affiliated with broker-dealers to regulation by the Financial Industry Regulatory Authority (FINRA). The provision — the Establishment of a Fiduciary Duty for Brokers, Dealers, and Investment Advisers, and Harmonization of Regulation (Sec. 7103) – had been troubling industry advocates because it would apply the same standard of care for all broker/dealers and their advisors. A key concern was the original bill language did not allow any broker/dealer representatives to be paid on a commission basis.
Other changes now allow advisors to sell a limited number of products through their broker/dealer and not be subject to the stricter standard of care. The standard would only apply when an advisor provides personalized investment advice “about securities,” according to the bill’s amendment.
Insurance advocates are now turning to the more troubling Senate version, which contains provisions that would subject insurance producers to the same standards as registered investment advisors. The Senate is expected to act on its version in January.
Other key items in the House’s reform legislation includes a Federal Insurance Office (FIO) within the Treasury Department to help federal lawmakers and staff with information about the insurance industry. Many in the industry support this proposal because it gives insurance a voice on the federal level, which is particularly important when issues such as insurance taxation arise. Some criticize the office as a back-door way to regulate insurance on the federal level because it gives the FIO pre-emption rights over states in instances such as when state regulation conflicts with international agreements.
Another aspect of the bill that concerned insurance advocates was the Consumer Financial Protection Agency, which was established by the legislation. Initially, the office was expected to have jurisdiction over core insurance products and services. The bill now also exempts those regulated by the U.S. Securities and Exchange Commission and state securities regulators.
The last-minute amendments were in large part due to lobbying by advocates such as the National Association of Insurance and Financial Advisors (NAIFA) and the Association for Advanced Life Underwriting (AALU).
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