States are forcing insurance agents to become securities licensedArticle added by Roccy DeFrancesco on September 12, 2012
Roccy Defrancesco

Roccy DeFrancesco


Joined: May 24, 2006

If you are only licensed to sell fixed life and annuity products, the writing is on the wall. I predict that eventually you will have to obtain a securities license of some kind.

All advisors are familiar with the SEC trying to regulate fixed indexed annuities (FIAs) when it introduced Rule 151A. 151A freaked out insurance-only licensed advisors who thought they might lose the ability to sell FIAs. When 151A failed, most advisors forgot about it and went back to business as usual.

Have you ever heard the term "source of funds" (SOF)? If not, you should. State regulators (insurance and/or securities departments) are trying to, in a back-handed way, do what 151A could not. They are trying to force insurance-only advisors to obtain a securities license.

What is SOF?

It is simply asking where did the money come from to fund a fixed life or annuity contract? (What is the source of funds?) If the money to fund a fixed insurance product came from the liquidation of stocks, mutual funds, etc., you may have a real problem if you don’t have a securities license. This includes money in IRAs.

The following should be very scary:

The Arkansas Insurance Department and the Arkansas Securities Department are joining together to go after insurance agents who are not securities licensed.

The following is a statement from the Department of Insurance Bulletin NO. 14-2009: "The recommendation to replace securities such as mutual funds, stocks, bonds and various other investment vehicles defined as securities under the Arkansas Securities Act is the offering of investment advice. It is unlawful to offer investment advice unless one is registered (licensed) with the Arkansas Securities Department as an investment adviser or investment adviser representative (emphasis added).


Yep, check out the language from the notice on fines: "The Insurance Commissioner has the authority to take action, including fines up to $5,000 per violation, against insurance producers who improperly engage in transactions involving securities. Additionally, the Securities Commissioner is also able to levy fines, up to $10,000 in most cases, or $20,000 when a senior citizen is involved.

Regulatory actions?

Sure. Both the Department of insurance and the Securities Commissioner can also bring an advisor up on charges that he or she is violating the state insurance and securities law (have fun paying for and defending these claims).


The recent Iowa Department Insurance Bulletin No. 11-4 has a list of seven items that a non-securities licensed advisor can’t do and they all are slanted towards preventing insurance-only licensed advisors from moving money from stocks, bonds, etc. into fixed life or annuity products.

This is not a good trend in the industry if you only have a license to sell fixed life and annuity products.
What does the future hold?

It is my belief that over time, every state department of insurance will follow suit and will issue the same type of bulletins. If you live in Arkansas or Iowa, you already have this headache to deal with. If not, you have a window of time to get ready for the inevitable.

While the securities-licensed advisors get a chuckle out of the complications the SOF problem poses for insurance-only licensed advisors, they really should think twice. The consequences of the SOF problem will be that thousands of advisors are going to obtain some kind of securities license. When that happens, it will create more competition in that space.

Bottom line

If you are only licensed to sell fixed life and annuity products, the writing is on the wall. I predict that eventually you will have to obtain a securities license of some kind. My recommendation is that advisors obtain their Series 65 and become an investment advisor representative (IAR) and work under an Registered Investment Advisor (RIA) that specializes in working with IARs. Becoming an RIA is another option, but one that’s very expensive.

You don’t have to agree with the source of funds angle the state regulatory bodies are taking, but unless you feel like litigating this issue with them, it will be prudent to deal with this coming reality and protect your livelihood.
Pages: 12
The views expressed here are those of the author and not necessarily those of ProducersWEB.
Reprinting or reposting this article without prior consent of is strictly prohibited.
If you have questions, please visit our terms and conditions
Post Article