WASHINGTON, D.C. – A proposed U.S. Securities and Exchange regulation would create a new barrier to annuity access for clients of registered investment advisers (RIA), according to comments filed by the Insured Retirement Institute (IRI).
The proposed Safeguarding Advisory Clients Assets rule would broaden the application of the current investment adviser custody rule beyond client funds and securities to include any client assets in an investment adviser’s possession or when an investment adviser has the authority to obtain possession of client assets.
According to IRI, the proposed rule would impair access to products providing protected lifetime income, thereby frustrating the ability of many investment advisers to provide advice in their clients’ best interests.
“These unfortunate outcomes could be avoided entirely through the adoption of an exception to the proposed rule’s qualified custodian requirement that effectively modernizes current SEC guidance that allows insurance companies to act in lieu of a qualified custodian in connection with all contract types,” IRI told the SEC in written comments.
Application of the proposed rule is predicated on an investment adviser having “custody” of “client assets.” The proposed rule defines “custody” as an adviser, or its related person, “holding, directly or indirectly, client assets, or having any authority to obtain possession of them . . . in connection with advisory services [the adviser] provide[s] to clients.”
Insurance companies own underlying contract assets for annuities they issue, and companies are subject to strict state insurance regulations and several federal regulations to protect consumers.
IRI says that providing an exception for insurance companies to act in lieu of a qualified custodian in connection with a contract would put insurance companies on equal footing with the mutual fund industry under the proposed rule.
“The SEC’s acknowledgment of the similarities between insurance companies and mutual fund transfer agents in the custody context necessitates consideration by the SEC as to why the two receive disparate treatment under the proposed rule – with insurance companies relying on limited no-action guidance from the staff and mutual fund transfer agents being granted a specific exception by the SEC in the custody rule,” IRI wrote. “For these reasons, IRI believes that it would be appropriate for the SEC to add an explicit exception to the proposed rule that would allow insurance companies to act in lieu of a qualified custodian in connection with contracts.”
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Contact: Dan Zielinski
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