Selling an annuity while advising investors about their securities investments will subject you to enforcement action by the Colorado Securities Commissioner.
In the summer of 2018, the Colorado Securities Commissioner (Commissioner) adopted a rule which provides that an insurance agent who receives commissions from the sale of insurance products, where the purchase was made with the proceeds from the sale of securities that the agent recommended be sold, must be licensed as an investment adviser. In other words, the “Agent Rule” (3 CCR 704-1; 51-4.1(IA), J.3.) restricts agents from suggesting that clients sell securities to raise the cash to buy an annuity.
Yet this is a common practice. Agents frequently advise clients to move assets from higher risk securities investments to relatively safer annuities policies. Since the passage of the Agent Rule, no public actions have been taken by the Commissioner, although private investigations into insurance agents’ sales of annuities have been conducted.
How to avoid cease and desist proceedings or, worse, enforcement litigation by the Commissioner? Becoming licensed as an investment adviser would be an obvious answer, but the cost and the fiduciary status of an investment adviser are probably too much for most insurance agents.
Instead, agents should take the time to understand what is at the heart of the rule: making recommendations concerning “specific securities or specific types of securities.” Insurance agents can best protect themselves and their clients with two actions: avoid reviewing clients’ securities accounts and avoid recommending any specific securities to sell.
This communication is provided for your information only and is not intended to constitute legal advice or legal opinion as to any particular situation. You should not take, or refrain from taking, any action based on information in this article, without seeking legal counsel from an attorney on your particular facts and circumstances. Jones & Keller would be happy to provide you with specific advice about particular situations, if desired. Do not hesitate to contact us.