Regulation Best Interest (RIN 3235-AM35); Form CRS Relationship Summary, Amendments to Form ADV, Required Disclosures in Retail Communications and Restrictions on the use of Certain Names or Titles (RIN 3235-AL27) 

August 7, 2018

Mr. Brent J. Fields Secretary
Securities and Exchange Commission 100 F Street, N.E.
Washington, D.C. 20549-1090

Re: Regulation Best Interest (RIN 3235-AM35); Form CRS Relationship Summary, Amendments to Form ADV, Required Disclosures in Retail Communications and Restrictions on the use of Certain Names or Titles (RIN 3235-AL27) 

Dear Mr. Fields,

The Association for Advanced Life Underwriting (“AALU”) is the leading organization of life insurance professionals who are a trusted voice on policy issues impacting Americans’ financial security and retirement savings. Our 2,200 members are primarily producers engaged in the sale of life insurance used as part of estate, charitable, retirement, and deferred compensation and employment benefit services.

As part of their service for clients, our members offer variable products, such as variable life insurance and variable annuity products. These products offer consumers investment choices for accumulating cash values—the variable element of the product— with separate guarantees from the issuer such as a guaranteed death benefit and lifetime income. These are important options for customers seeking to address their protection and retirement needs using life insurance and annuity products. These tools are recognized as even more important in recent years to address risks to families and businesses of premature death and of outlivingsavings.

We appreciate the efforts of the U.S. Securities and Exchange Commission (“Commission”) to ensure that the standard of care for broker-dealers and registered investment advisors is appropriate and protects consumers. The Commission has deep experience in the regulation of securities products, as we noted during the comment process for the Department of Labor’s (“DOL”) fiduciary rule. The Commission is the proper agency to take the lead in this area.

AALU’s members work in the best interest of their customers every day. We support a workable and appropriately tailored best interest standard that is neutral to business model, product type, and compensation approach, while preserving consumer choice and access to products and services to meet their varied financial planning needs.

Through our letter, we sought to provide detailed information in areas where we believe AALU, based upon our members’ business and expertise, can be most helpful in furthering the Commission’s understanding of the important issues raised in the Proposal, and we look forward to continued engagement with the Commission throughout this process.

Key Points

  • Best Interest Standard: We appreciate the formulation of the best interest standard in the Proposal that a recommendation be made “without placing the financial or other interest of the broker-dealer…ahead of the interest of the retail customer.” We believe this meets the Commission’s goal of ensuring that recommendations are in the best interests of consumers, without setting unworkable requirements for registered representatives affiliated with broker dealers and investment advisors (“registered representatives”) that could actually result in limiting the customer’s choice. We agree with the Commission’s decision to reject the DOL’s construction that a recommendation be made “without regard to the financial or other interest of the broker dealer.” Such a formulation could be interpreted to prohibit any form of financial compensation; a result that would severely impair access to financial counsel desired and needed by millions of
  • Standards Tailored Specifically to Broker-Dealers and Investment Advisors: We support the Proposal’s maintenance of standards of conduct tailored to the unique business models for broker- dealers and investment advisors, respectively, and the particular needs of different We appreciate the Commission’s clear intent to make refinements to the broker- dealer regulatory framework for episodic transactions apart from enhancements to the fiduciary duty under the Advisers Act.
  • Private Right of Action: We appreciate that the Commission did not create any new private right of action or right of rescission in the One of our biggest concerns with the DOL fiduciary rule was that it subjected financial professionals to a private right of action in State court. The costs and risks associated with such liability led many financial firms to reduce service and product choice, or even eliminate support for retirement investors altogether, as the rule was implemented. The Commission, along with FINRA, has effectively provided regulatory enforcement and oversight of securities products for many years. Any enhancements around enforcement must not trigger a reduction in product choice and access to professional financial advice for consumers.
  • Restrictions on the Use of Titles: The Commission asks about restricting the use of the term “advisor” or “adviser” to those that have particular credentials. While we appreciate the intent of such a policy, we do not believe this will reduce consumer confusion. There are numerous financial professionals who are not subject to Commission jurisdiction, which limits the extent to which the Commission can allay purported consumer confusion on this topic. Instead of focusing on regulating titles, which has not proven effective, the Commission should focus on the conduct of registered representatives in the

Life Insurance and Annuity Products Provide Unique Value

Life insurance and annuity products offer essential benefits to 75 million American families and many businesses—providing protection, financial security, and peace-of-mind. Consider the following benefits of life insurance products:

  • Protection: Life insurance provides protection against the risk of early death or a debilitating injury or illness by providing benefits that replace lost income and pay A death benefit can be important for a surviving spouse even in retirement years, especially as life expectancy increases. Small businesses—and their employees—are protected from the loss of an owner or key employee, as life insurance provides essential liquidity to ensure the continued viability of the enterprise.
  • Enhanced Benefits for Employees: Life insurance products make it easier for employers to offer important health, retirement, and life planning benefits to Businesses use life insurance to match a long-term asset with long-term liabilities to support benefits for employees that strengthen their retirement savings and improve quality of life, as well as to assure continuity of small businesses when an owner dies.
  • Flexibility: Life insurance products offer flexibility that help individuals address different needs at different stages of their lives. As one example, an individual requiring significant long-term care can quickly burn through their retirement savings. Life insurance products can offer effective alternatives to addressing long-term care
  • Guaranteed income in retirement: Outside of defined benefits plans, only annuity products can offer a guaranteed income stream for your entire life. There is a significant demand for these types of products; a recent study found that two-thirds of non-retirees are concerned about guaranteeing a steady retirement income no matter how long they live.i Annuities that provide guaranteed income provide the enhanced security Americans are seeking in This need is further underscored as life expectancies increase.

The life insurance industry plays a critical role in capital formation in America. Life insurance companies have assets supporting nearly $7 trillion dollars in fixed and variable insurance products. Around 48% of the total assets of life insurance companies are held in long-term bonds, with these companies purchasing over 22% of all corporate bonds.ii There is $20 trillion of financial protection in force through life insurance products, which comprise nearly 17% of long-term savings for U.S. households. The life insurance industry pays out $1.7 billion daily and generates 2.6 million American jobs.iii Life insurance products play an essential role in providing financial and retirement security to American families and provide a variety of solutions for our nation’s businesses.

The Current Regulation of Life Insurance Professionals and our Industry is Robust 

Life insurance professionals are governed by every State in which they operate, the carriers whose policies they sell (each of which is approved in the State sold), the Commission, DOL, and FINRA.

The Commission and FINRA enforce the antifraud provisions and the just and equitable principles of fair dealing enumerated in the Securities Act of 1933 and the Securities Exchange Act of 1934, and through FINRA’s rules. An important aspect of fair dealing is the obligation that registered representatives make investment recommendations that are suitable and consistent with the interests of the customer. FINRA rules 2090 and 2111 collectively require the registered representative to obtain certain essential facts concerning every customer and to use that information to reasonably determine whether an investment product or strategy is suitable prior to making an investment recommendation. When a sale of securities is executed, broker- dealers are paid a commission from the product sponsor, mutual fund, or insurance company, instead of a fee by the client. The broker-dealer has responsibility for reviewing the offering of the product and having a separate determination of suitability by a registered principal of the firm.

For AALU’s members, FINRA Rule 2330 sets forth enhanced and extensive regulatory and supervisory sales practice requirements for recommended purchases or exchanges of variable annuities. These include detailed disclosures about the product, including disclosures of its various features, such as the potential surrender period and surrender charge, potential tax penalty if customers sell or redeem early, mortality and expense fees, investment advisory fees, potential charges for and features of riders, the insurance and investment components of deferred variable annuities, and market risk. These types of disclosures, detailed as to the features and risks of particular types of investment products in relation to their benefits, are meaningful for investors. Together with information relating to costs and fees provided in confirmations, account statements, and other materials, these types of disclosures enable investors to comprehensively evaluate the products and all associated fees and charges.

More specifically, FINRA Rule 2330 requires:

  • The registered representative’s thorough assessment that the particular variable annuity is suitable for the customer, based upon specified factors;
  • Detailed due diligence required to be performed by the registered representative regarding the customer, including age, income, financial situation and needs, investment experience, investment objectives, intended use of the annuity, investment time horizon, liquidity needs, liquid net worth, risk tolerance, tax status, and other relevant information;
  • The registered representative who recommends the variable annuity must promptly send a complete application package to supervisory personnel;
  • A registered principal is required to review and determine whether to approve the recommendation (only after making and documenting his/her own suitability analysis);
  • The requirement for enhanced supervisory procedures for variable annuity sales and exchanges;
  • Specific training policies; and
  • Other requirements regarding the depositing of funds prior to approval.

This enhanced level of due diligence, supervision, and standard of care exceeds the standards applicable to other securities products and the principles-based standards applicable to investment advisors.

Existing disclosure and other customer protection requirements are buttressed by the requirements for daily suitability review by a registered, qualified principal of the broker-dealer of all recommended transactions effected by a broker-dealer – a review that is heightened for products that may present higher risks. Moreover, these internal supervisory and audit procedures are further buttressed by the robust examination programs administered by the Commission, FINRA, and State securities regulators. The frequency and intensity of FINRA audits of broker-dealers means that many potential problems will be detected and corrected through the examination process, and it gives broker-dealers a strong incentive to continuously monitor and adhere to regulatory requirements.

In addition, insurance producers who sell variable products are subject to multiple layers of regulation and oversight—by the Commission, FINRA, State securities regulators (including in each State in which they operate, which often results in oversight by multiple State securities regulators), and State insurance regulators (also in each State in which they are licensed and operate, which again results in oversight by multiple State insurance regulators). Insurance producers are subject to detailed requirements by the carriers who appoint them. These companies employ a due diligence process with new producers to ensure they are working with reputable, licensed, and educated producers, and carriers continue to review producer activity through the tracking of consumer complaints as mandated by state insurance regulators. Insurance producers are also subject to robust internal supervisory procedures by the broker-dealers with which they are affiliated.

The design of variable life insurance products requires medical and often financial underwriting that goes beyond the requirements for traditional securities. The complexity and breadth of applications relating to these products requires an assessment primarily of financial and protection needs. This necessitates an analysis related to death benefit, cash values, tax considerations, and costs. Further, with each application insurance underwriters assess the need for the coverage, the appropriateness relative to the amount of coverage, the ability to pay-in some cases the underwriter will even interact with the financial professional on the product, premium payment design, and riders selected to accompany the policy.

In addition to the Commission’s and FINRA’s roles in the registration and sales of these products, the products are also regulated by State insurance commissions. Registered representatives who sell these products are subject to the terms of their contract with the issuing insurance company, which is subject to regulation by multiple state insurance regulators. Indeed, the scope and level of regulation is significantly higher for variable life insurance products than for other securities under the existing standard of care.

We discuss the business of our members and the regulatory requirements specific to the sale of variable products in more detail in Attachment A to this letter.

Coordination between Federal, FINRA and State Regulation is Essential

 As the Commission develops a final rule, it is essential to collaborate with federal, FINRA, and State regulators for all types of securities products. Consistency across all regulatory platforms is in the best interest of consumers. As demonstrated by our recent experience in complying with the DOL Rule, a lack of sufficient coordination with other regulators can cause significant          harm and disruption in the marketplace that can curtail consumer choice.

Regulation Best Interest: Conflicts of Interest 

One of our biggest concerns with the proposal is the lack of clarity around mitigating or eliminating conflicts of interest with financial incentives. As explained above, registered representatives are currently required to comply with a number of federal, FINRA, and State regulations, as well as a variety of broker-dealer and carrier supervisory policies and provisions, to mitigate conflicts of interest and ensure consumers’ best interests are being served. The concept of mitigation, while not clearly defined in the Proposal, appears to closely align with compliance and supervisory policies, procedures, and well- accepted industry practices, such as processes for compliance with FINRA Rule 2330. Adding another regulatory requirement, mitigation, which is not clearly articulated potentially creates confusion and adds and unnecessary costs for investors, registered representatives, and firms. It is unclear what specific concerns the Commission is trying to address around mitigating conflicts, or what additional mitigation measures it is seeking. Additional clarity in this area is critical in the final rule, or this unclear mitigation concept should be omitted from the final rule. To be clear, there should be flexibility around mitigating conflicts of interest—it should be based on individual facts and circumstances rather than establishing a one-size-fits-all framework. Overly-rigid mitigation requirements could limit consumer choice of products and access to professional financial advice.

We are also concerned about the lack of clarity around eliminating conflicts of interest. Outside of clear and specific guidance from the Commission as to what conflicts must be eliminated—not simply disclosed (or mitigated)—broker-dealers may potentially interpret the rule in a conservative manner, reducing choice by curtailing products and services that are well-suited for some investors. Again, additional clarity in this area is necessary in the final rule or this concept should not be included in the final rule.

Finally, the concepts of mitigation or elimination of conflicts of interest are not developed in the principles- based regulatory regime applicable to investment advisors. Thus, in addition to potentially creating new, duplicative, and confusing regulatory standards with these unclear concepts, these aspects of the rule will potentially further exacerbate the trend of retraction of the  range of products offered by broker- dealers. This potential result is in complete contradiction to language in other areas of the Proposal and in the public statements by the Commission.

Final Rule Must be Compatible with Life Insurance Business Models

The life insurance industry has unique characteristics in terms of business models in the financial services industry, and the Commission should take these differences into account to avoid unintended consequences that could negatively impact consumers whose needs are currently well served. For example, broker-dealers affiliated with life insurance companies generally have significantly different characteristics from full- service broker-dealers in terms of products, services, and operations. Many registered representatives affiliated with life insurance-focused broker-dealers principally sell proprietary life insurance and annuity products. Additionally, some broker-dealers and their registered representatives are dually registered as investment advisors.

Some life-insurance-affiliated broker-dealers are strictly wholesale operations, distributing variable products through affiliated and non-affiliated broker-dealers. These broker-dealers do not generally engage with retail customers or hold securities or customer funds. Some broker-dealers conduct both wholesaling and retail activity. Many producers use a wholesaler to increase the choice of products available to their clients. Having access to a larger suite of products allows producers to find the most appropriate solution to meet their clients’ particular needs.

Life insurance and annuity products have always been largely commission-based, a system developed through decades of regulation and supervision by federal and State regulators. In fact, many States review and approve the commissions that can legally be charged for certain insurance-based products. Congress affirmed the importance of commission-based advice in the context of the standard of care for investment advice by ensuring in Section 913 of the Dodd-Frank Act that receipt of a commission should not, in and of itself, be deemed a violation of a future Commission-promulgated standard of care rule.

One of the values of commission-based compensation is that the structure is directly tied to the features of the product. Variable life insurance and annuity products are typically more multidimensional products due to their structure, and the additional time necessary to review these types of products with investors. Ultimately however, all recommendations must be suitable for a client based on the client’s current circumstances and objectives.

Commission-based compensation also provides value for investors. Long-term investors may prefer a single point-in-time payment over an ongoing, annual obligation that increases with the value of their investment account. For many investors a brokerage relationship is the better value for a particular transaction. For example, the annual fee associated with an investment advisory account can add up to far more money paid than a point-in-time commission, meaning that commission-based advice is often the most cost-effective option for certain retail investors to receive education and access to life insurance products.

Non-cash compensation associated with variable life insurance and annuity products is strictly regulated by FINRA under rules implemented to detect and prevent abuses and to protect consumers. The Commission should not prohibit currently-compliant compensation arrangements and business models, including non- cash compensation such as producer meetings with an educational component that reward aggregate producer production. Rather than choosing among different business models and compensation models, the Commission should emphasize clear and concise disclosure of conflicts of interest to customers and prospective customers.

  • Proprietary Products: Many life insurance companies and producers offer a suite of proprietary products that contribute to a diverse set of quality investment options, allowing retirement savers to meet their needs. Unlike other types of investments, life insurance companies have created products that offer a guarantee that benefits will be Life insurance professionals have a detailed knowledge of the proprietary products they offer, with the training to explain them to consumers. Limiting access to proprietary products could prevent consumers from obtaining high- quality products that best fit their situation. Financial institutions offering these proprietary products are regulated at the federal, self- regulatory, and State level to ensure registered representatives are providing best interest advice and receiving reasonable compensation. As the Proposal explains, Section 913 of the Dodd-Frank Act provides that offering only proprietary products by a broker-dealer shall not, in and of itself, be a violation of a Commission standard of conduct. We appreciate the SEC’s reaffirmation of this point. Federal, self-regulatory, and State regulators have long recognized the value of proprietary products for consumers.
  • No Bias Towards “Least Expensive” Investment Option: The final rule should not include the presumption that the cheapest products are those deemed the only ones to be in the best interest of In fact, it is critical that the cost and value of products and services are considered together. While it is certainly important to ensure that fees are in a consumers’ best interest, it is not necessarily true that a product with lower fees is superior to a product with higher fees. For example, IRAs and 401(k) plans are different products and could be right or wrong for an investor depending on their objectives. The additional products and services available to IRA holders typically cost more, but that does not mean they are inappropriate investments for retirement savers. Many investors may choose to pay more for individualized advice and a wider variety of products that can help diversify a portfolio. This is particularly true for complex investments and products providing guaranteed income. The issue is not whether compensation in year one is higher or lower than another type of investment—the issue is whether the cost to the consumer is reasonable over the duration of that investment when evaluated within the context of its benefits.
  • Full-Time Life Insurance Status (FTLIS): Many life insurance companies with a career sales force rely on the IRS code governing FTLIS to provide employee benefits to affiliated agents. These agents are independent contractors for employment law purposes—to qualify for health, welfare, and retirement benefits with a life insurance company, an affiliated agent needs to sell a certain amount of their proprietary products. We are concerned that a final rule may contain provisions for mitigating or eliminating conflicts that could be interpreted as nullifying this current The unique relationship between affiliated agents and life insurance companies, and the benefits of the provision of crucial employee benefits, was recognized by Congress when they established the FTLIS rules—any final rule should be consistent with them.

Concerns About Reduced Choice and Access to Financial Advice for Consumers

We share the Commission’s goal of improving financial advice services for consumers. The benefits to the very same consumers is undermined if the final rule results in reduced product choice and access to professional financial advice. When protecting their families and saving for retirement, individuals must be able to choose what is right for them. It is essential for consumers to fully understand their options. We support clear and simple disclosure of roles, obligations, product offerings, and material conflicts so that consumers are protected, and choice is preserved.

In other product markets, consumers have the independence and freedom to make decisions based on their own determinants of value—including items that have a significant impact on retirement savings such as the purchase of a home. Standardized disclosures, data conformity, good faith estimates, consumer reports, and social media feedback exist to inform consumers, while preserving consumer choice.

  • DOL Fiduciary Rule: Experience with the DOL fiduciary rule shows the potential harm to consumers of overly-restrictive mitigation or conflict-avoidance measures. While the rule was vacated by the 5th Circuit Court of Appeals in March of 2018, the financial services industry spent almost two years implementing the rule and subsequent transition rules. A variety of evidence from that implementation period shows that the ultimate result of these measures in the rule was a reduction in professional financial advice and choice of products by a number of financial firms. For example, according to a study by Deloitte & Touche evaluating the response of financial service providers to the DOL Rule, 95% of surveyed institutions reduced access to products offered to retirement savers, including annuities.iv Variable annuity distribution declined sharply even though sales typically increase in rising markets—from $130.4 billion in 2015 (before the DOL Rule) to $102.1 billion in 2016(following the DOL Rule’s promulgation).v The DOL rule was biased against variable annuity products and many firms sought the easiest path forward. See our 2017 comment letters to the Department of Labor for more

Client Relationship Summary – Form CRS

AALU supports clear and simple disclosure of roles, obligations, product offerings, and material conflicts so that consumers are protected, and their choices are preserved. Investors would benefit from a short and simple disclosure statement that is presented by financial professionals at the outset of a client relationship, and we support the goal of Form CRS Relationship Summary (Form CRS”) in the Proposal in this regard. However, the Commission should work to avoid the creation of more confusing legalese that few consumers read or find useful to enhance clarity of comprehension.

With respect to format and delivery, the primary structural goal in the design of a disclosure statement should be to communicate material information as succinctly and plainly as possible, making additional layers of information available to the investor as needed or desired. The delivery of this information should be flexible. Retail customers should be able to access hard or electronic copies of disclosure statements, and both should provide opportunities to access additional information as it is needed (through hyperlinked documents, websites, or other means).

AALU Sample Disclosure Template

As part of the SEC’s 2013 Request for Information regarding standards of conduct for broker-dealers and investment advisors, AALU developed such a document, which is included below (Attachment B). Our goal was to develop a simple, user-friendly “first layer” document, which could be used to direct a customer to additional information if desired. This particular sample disclosure document was written to accommodate a financial services firm that offers insurance, broker-dealer services, and investment advisory services, and it therefore carefully distinguishes the roles and responsibilities relating to each area. However, it can be adapted to three forms, as the Commission has done with its mock Form CRS.

The marketplace is often depicted as one where consumers face a stark choice, commission-based advice or fee-based advice. The reality is that many advisors provide both types of services based on the best fit for the client. We developed our document with this important fact in mind—to clearly explain the different services that are being offered.

One of the firms that was involved in developing our document implemented a similar form on a voluntary basis. Roughly one-third of financial professionals at this firm use this sample disclosure form. While the evidence of its effectiveness is anecdotal, the client response to this disclosure form has been very positive.

During this process, they found it very difficult to develop a blanket disclosure document to encompass a single disclosure document for registered representatives. In their experience, a customized financial professional disclosure with specific licenses and services like Form ADV Part 2 is an important element to include in a final rule.


We thank the Commission for the opportunity to provide comments on this important subject. We support the Commission’s goal of ensuring that the standard of care for broker-dealers and registered investment advisors is appropriate and protects consumers, and believe it is the proper agency to take the lead in this area.

AALU supports a workable and appropriately tailored best interest standard that is neutral to business model, product type, and compensation approach, while preserving consumer choice and access to products and services to meet their varied financial planning needs.

Our members appreciate your thoughtful consideration of these comments. Please reach out with any questions you have.


Marc Cadin
Chief Operating Officer
Association of Advanced Life Underwriting



i Rebecca Moore, Pre-Retirees Want Lifetime Income Guarantees, Plan Adviser, October 17, 2017, available at:

ii These calculations are based on data from the 2017 NAIC Annual Statement Data and ACLI calculations based on the U.S. Federal Reserve Board, Flow of Funds Accounts of the U.S.

iii American Council of Life Insurance, Life Insurers Fact Book, 2017, available at:

iv The DOL Fiduciary Rule: Study on How Financial Institutions Have Responded and the Resulting Impacts on Retirement Investors, August 9, 2017, Deloitte & Touche LLP.

v IRI Issues Fourth-Quarter 2016 Annuity Sales Report,” March 30, 2017.

vi See Letter from David J. Stertzer to Department of Labor, Definition of the Term “Fiduciary”—Additional Comments Regarding the Economic Impact of the Rule and Associated Exemptions (RIN 1210-AB79), April 17, 2017, available at:; See Also Letter from David J. Stertzer to Department of Labor, Request for Information Regarding the Fiduciary Rule and Prohibited Transaction Exemptions: Response to  Question 1 Relating to Extending the Transition Period of the Fiduciary Rule (RIN 1210-AB82), July 21, 2017, available at:; See Also Letter from David J. Stertzer to Department of Labor, Request for Information Regarding the Fiduciary Rule and Prohibited Transaction Exemptions (RIN 1210-AB82), August 7, 2017, available at: comments/1210-AB82/00584.pdf.

Read full letter here.