Stockbrokers

  • More than 150 life insurers now own brokerage or investment firms, according to the National Association of Securities Dealers.
  • ”The franchise value of a major securities firm is something that is clearly established,” said George L. Ball, chairman of Prudential-Bache Securities. ”Insurance is a steady parent for the more volatile investment arm, making a very nice link.”

1986 1227 – NYT – Why Insurers Covet Brokers, New York Times – [link]

  • The product is likely to be sold by sophisticated agents and financial planners.
  • Many of these agents and planners are accustomed to similar investment features in annuities and will be the first to make the transition to variable universal life.
  • Another distribution source for the product is stockbrokers. 

—  Zafar Rashid

1985 – SOA – Variable Universal Life Insurance, Society of Actuaries – 22p

  • The Proposal is premised upon the Department’s rejection of the dichotomy under the law between a sales recommendation to a consumer on the one hand, and advice provided for a fee on the other.
    • The Department’s Proposal seeks to define the term “investment advice fiduciary” to include anyone who is in the business of making routine sales recommendations by persons engaged in commonplace sales and marketing efforts.
    • The Fifth Circuit disagreed with the Department’s conflation of sales activity and fee-based investment advisory activities back in 2018, observing that “when enacting ERISA, Congress was well aware of the distinction … between investment advisers, who were considered fiduciaries, and stockbrokers and insurance agents, who generally assumed no such status in selling products to their clients.”
  • The court found that the Department’s interpretation of ERISA:
    • conjoins “advice” with a “fee or other compensation, direct or indirect,” but it ignores the preposition “for,” which indicates that the purpose of the fee is not “sales” but “advice.”
    • Therefore, taken at face value, the provision rejects “any advice” in favor of the activity of “render[ing] investment advice for a fee.”
    • Stockbrokers and insurance agents are compensated only for completed sales (“directly or indirectly”), not on the basis of their pitch to the client. Investment advisers, on the other hand, are paid fees because they “render advice.”
    • The statutory language preserves this important distinction.

2024 0102 – Letter – ACLI to GOV-DOL / EBSA – Subjects: Retirement Security Rule: Definition of an Investment Advice Fiduciary (RIN 1210-AC02); Proposed Amendment to Prohibited Transaction Exemption PTE 84-24 (Application No. D-12060); Proposed Amendment to Prohibited Transaction Exemption PTE 2020-02 (Application No. D-12057)  —  [BonkNote] 

  • (p151) – Written Statement of the Connecticut Mutual Life Insurance Company
    • Single premium sales grew from 1984 through 1987 from just over $1 billion of premium to just under $10 billion, approximately doubling the sales for each preceding year.
      • More astounding, perhaps, is the fact that single premium sales from a small fraction of new premium for all forms of insurance to virtually rival sales of all other forms of insurance combined – which approximated $10 billion in 1987.
    • More important, perhaps, are the facts cited in the GAO testimony indicating that more than half of single premium sales during 1986 were attributable to stockbrokers.  

1988 0325 – GOV (Senate) – Tax Treatment of Single-Premium Life Insurance, Max Baucus (D-MT)  —  [BonkNote]

  • I’d like to go through a bit of history and cover some of the challenges that are coming up and see what we might be able to do with them.
    • Let’s start with October 1987, which, in my mind, started a nifty period for the annuities — the “golden age,” as I would call it.
    • There was a period of time, 1985 through most of 1987, when single premium fixed life insurance and single premium variable life insurance were really coming on strong.
      • These products were offering the potential for tax-free income through wash loan features, and the indication was that the SPDA product was going to be left behind. Things changed rather abruptly – within a two-week period.
      • There was a 500-point Dow Jones decline in October of that year, and a big challenge emerged on the tax front with Stark and Rostenkowski. Ultimately, a year later, the tax laws were changed to preclude tax-free income through use of the loan feature.
  • So it was back to basics for agents and stockbrokers. The good, old tax-deferred annuity concept wasn’t that bad after all, so they got re-energized.

—  Michael Winterfield, partner with Ernst & Young in New York City

1991 – SOA – Annuity Product Development Update, Moderator: Philip Polkinghorn, rsa91v17n218 – Society of Actuaries – 22p