Responding to the Consumer Federation of America's letter to Congress calling for the SEC to move forward on a Fiduciary Rule for Brokers, [See CFA asks for proof of fiduciary standard costs] NAIFA President Terry Headley released this statement:
"The Consumer Federation of America's claim that the fiduciary standard of care provides better protection for consumers is a myth. In fact, some members of Congress have written to the SEC to request further economic analysis of the impact a fiduciary standard of care could have on the marketplace.
"The suitability standard is robust and heavily enforced. A suitability standard is rules based, objective and prospective in nature, as opposed to fiduciary, which is process-oriented, subjective and retrospective.
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"Most of NAIFA's members are community-based small business owners, many working as sole practitioners, who provide affordable insurance and financial services to the middle-market. As registered representatives of broker-dealers, NAIFA members serve Main Street investors and are subject to an annual compliance review by their broker-dealer in addition to the daily compliance procedures their broker-dealer enforces. These procedures are in place to ensure that every product available to consumers is appropriate for their needs and circumstances.
"In addition, sales of variable annuities are subject to a comprehensive regime of state and federal regulation and a high degree of scrutiny. This is due to the fact that these hybrid products are regulated by both state insurance regulators and FINRA, which responded to past allegations of problems by implementing FINRA Rule 2330, which specifically addresses the regulation of variable annuity sales and marketing. At the state level, NAIFA has been supportive of the National Association of Insurance Commissioner's enhanced suitability in annuity transactions and annuity disclosure model regulations, and we continue to work toward adoption of these models in all states.
"According to a survey of NAIFA members conducted by LIMRA, most NAIFA members are concerned that the fiduciary duty would increase their costs of doing business. NAIFA members average more than 500 hours and nearly $9,000 per year to meet their current compliance obligations. If more regulation under a fiduciary standard were to increase their costs by 15 percent, 65 percent of the NAIFA members surveyed said they would need to take actions that could limit the middle market's access to financial advice. These include limiting their practice to affluent clients, declining to offer securities products, and implementing or increasing fees.
"There is no evidence to support the claim that the fiduciary standard has provided consumers superior protection in comparison to the protection provided by the suitability standard. NAIFA believes that all Americans should have freedom of choice on how they access and pay for financial products and services. We therefore support Congress and the SEC for doing the necessary due diligence to ensure a change doesn't result in unintended consequences for investors."
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