Life Insurance Agents Fear Senator Dodd's Regulation Bill

Published: Wed 25 Nov 2009

Thomas Kristoffersen

Special interest groups that represent life insurance agents have asked Senator Chris Dodd (D-Connecticut), the Senate Banking Committee's chairman, to rethink Section 913 of the Restoring American Financial Stability Act, Dodd's bill, that would require life insurance agents to become registered investment advisors (RIAs).

In a letter written to Dodd on November 20, the Association of Advanced Life Underwriting (AALU), the National Association of Independent Life Brokerage Agencies (NAILBA), and the National Association of Insurance and Financial Advisors (NAIFA) contend that the effect of Section 913 would be "enormously costly and counterproductive" and a "radical departure from current law." The provision would result in "reduced customer access and service, reduced financial protection for Americans, and loss of capital formation and jobs," the organizations argue.

According to the groups, Section 913 "would force life insurance agents who already are qualified as registered representatives and supervised by the SEC and FINRA to register as investment advisers-and thereby take on more responsibilities, more expenses, and more liability." If included in the bill, Section 913 would "force thousands of our members to limit the product choices available to their customers, the majority of whom are middle-market consumers who look to us for insurance and retirement products."

Dodd and the Senate Banking Committee began revising the Restoring American Financial Stability Act on Nov. 19, but the senator stopped work on the legislation after encountering opposition from a high-ranking member of the Republican party, Richard Shelby of Alabama. Bipartisan discussions have resumed on the legislation, and Senator Dodd would like to have the bill finalized by the end of the year.

On November 24, Politico reported that Senator Dodd requested that key members of the Banking Committee form smaller working groups with both parties represented in order to "break the logjam" on the financial reform bill. Politico indicated that Senator Dodd will team up with Senator Shelby to address the two most divisive elements of the legislation's discussion draft: consumer protection and the prudential regulation of banks.

The Investor Protection Act (H.R. 3817) of the House Financial Services Committee, which the House passed on Nov. 4 and scheduled for debate on the full House floor in the beginning of December, also contains related language of fiduciary duty. However, the legislation contains an amendment authored by Rep. Dan Maffei (D-New York) that makes clear that life insurance brokers, dealers, and their representatives "would not have to be knowledgeable of all products in the universe," Maffei said.