Insurance agent pays $10k fine for recommending sale of securities to purchase an FIA

By Roccy Defrancesco

The Wealth Preservation Institute


I’ve been pounding the drum pretty hard now for over six months that every insurance-only licensed advisor better get his/her Series 65 to avoid just the issue discussed in this article.

If this isn’t your wake-up call, you need to get a hearing aid.

If you’ve read my past articles, you should know that the Arkansas Insurance Department (Bulletin No. 14-2009) and the Iowa Insurance Department (Bulletin 11-4) are two states that are overt in their position that it is a violation of their state securities laws for a non-licensed person to tell a client to sell a stock, mutual fund, bond, etc., to fund a fixed annuity (or any fixed product). Here's my previous article that provides more information on the source of funds (SOF) issue.

Consent order in the state of Illinois

This is the first I’ve heard about the State Department of Securities (DOS) in Illinois going after insurance agents on the SOF issue.

Here is the actual consent order, which I recommend everyone should read.

In summary, it appears that the insurance agent did what most insurance agents do when selling an FIA. He informed the client about the product but then had to figure out where the money would come from to fund it. It appears that in the case at hand, the money to fund the annuity would be coming from the sale of a security.

To make a long story short, the DOS in Illinois somehow got this case on their desk and negotiated a consent order with the following amazing terms:

1) $10,000 fine

2) Forced language that must be used on the insurance agent’s website and in the emails he sends. It is truly amazing and scary that the agent agreed to use certain language not only on his website but also in every email he sends. It should scare everyone who reads this.

It is my opinion that all agents eventually will need a securities license in order to sell fixed products. Sad but true.

I believe that the state securities commissions will continue to pursue actions against non-securities licensed agents who are telling clients to move money from mutual funds, stocks, etc., into FIAs, EIULs, or other fixed instruments.

It is for this reason that from a compliance point of view, I believe every non-licensed agent should protect his/her ability to make a living by obtaining a Series 65 and becoming an IAR.