Category: Compliance · 4 min read
The Problem of Too Much Talk
on April 30, 2019
on April 30, 2019
It starts off like every other client meeting. You’re talking about a life insurance policy or annuity that might be a good fit for their retirement strategy. Then, it happens. They have questions about their IRAs and mutual funds. You know that you’re not licensed to sell these products, but you don’t want to lose a client, either.
This is where the line is drawn between staying on the right side of regulations and stepping into trouble.
What should you do?
There really shouldn’t be any question; it’s plainly laid out in all state insurance guidelines. If you aren’t licensed to sell a security, then you cannot discuss them. The right answer? Be honest. Let your clients know that you’re licensed for insurance and annuity products and can’t discuss their specific investments.
While you could provide high-level information about what an IRA is or how a mutual fund works, you’re not able to provide them any type of recommendation or discuss the investments they’re currently in or may be interested in, including variable annuities and life policies.
Find a Partner
The good news is that you do have some options that will keep you on the right side of the regulators. One option is to partner with a credible financial advisor. Having a resource to refer clients to is a great way to show that you take their financial well-being, and your role as their financial professional, seriously. It will also show your clients that you have the resources to help them create the strategy that can encompass many of their retirement needs.
WARNING: Keep it General
If you choose to talk high level about securities products, which I don’t recommend, it must be done with caution. Keep it general and don’t provide specific product details. For example, you could tell them that IRAs are vehicles that are designed to help save for retirement and that there are different types, including Traditional and Roth. You can even tell them what the contribution limits are and that they can designate a beneficiary on these types of accounts. However, any discussion of specifics regarding these types of investments should be avoided.
The line between providing information and a recommendation can be blurry. Crossing that line can mean the potential for complaints, enforcement actions, and fines.
Take it Seriously
Regulators also take what you call yourself very seriously. Holding yourself out to be something you’re not can subject you to enforcement actions and hefty fines. The NAIC model regulation has included “financial planner”, “investment adviser”, and “financial consultant” as prohibited terms for insurance producers. In addition, the term “financial advisor” shouldn’t be used for insurance producers that are not securities licensed. It’s another form of misleading advertising, and the regulators are serious about it.
Consider Getting Licensed
Your other option? If you want to talk about products your life insurance license doesn’t cover, then get licensed. There are numerous securities licenses available that would allow you to discuss securities, including the Series 6 and the Series 7. Check out the FINRA website for more information on licensing requirements.
Serving your clients should be your number one priority, and, for most financial professionals, it is. But knowing your boundaries is just as important. State insurance departments have been very clear that financial professionals that present themselves as something they aren’t (like a financial advisor or financial planner) are misleading consumers and are subject to enforcement actions, as appropriate. That means you should be careful of what you say to your clients, and make sure that you’re staying compliant when it comes to talking about securities.
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This information is intended for Financial Professionals who are insurance licensed only. If you are securities licensed, please contact your Broker Dealer for their requirements.
These educational pieces are intended to be informative and provide generalized guidance. They should not be construed as legal advice or provide protection against compliance violations brought on by a consumer or state insurance commission. It is the sole responsibility of the financial professional to seek compliance or legal direction specific to their individual situation. These pieces should be used to raise awareness and evaluate business practices.
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