Securities Law Reminders for Insurance Agents Part II
By Thomas E. Geyer, Darius Kandawalla
Here is Part II of the article Securities Law Reminders for Insurance Agents. In case you missed Part I, click here.
Giving Investment Advice
When assisting a client with their insurance needs, an agent may wish to provide more comprehensive financial planning. If that planning involves giving advice regarding securities, the agent generally must be licensed as an investment adviser or investment adviser representative. An investment adviser is an entity or natural person that is in the business of, for compensation, providing advice regarding securities. An investment adviser representative is a natural person who is employed by an investment adviser firm and regularly meets with a certain minimum number of clients. In addition to licensing requirements, investment advisers and adviser representatives are subject to certain recordkeeping and business conduct standards, such as requirements regarding the custody of client funds and securities and limitations on performance fee arrangements.
Acting as a Finder
“Finder” is not defined in the securities laws, but is used to describe a person who works to “find” people to invest in smaller securities offerings. The securities laws permit certain small securities offering to proceed without registration if the offering is made to a limited number of financially sophisticated investors without advertising or general solicitation efforts. The ability of an issuer to find qualified investors—without advertising or other solicitation efforts—is vital to the success of the offering. Thus, it is often natural for an issuer to seek assistance from a financial professional like an insurance agent who has a network of clients. However, an agent must be aware that he or she is generally prohibited from receiving compensation or other remuneration in exchange for any efforts in helping to find investors. Acting as an unlicensed finder not only creates liability for the person acting as the finder, it also may result in the loss of the exemption for the offering, which would have severe, negative consequences for the issuer and all others involved in the offering.
It is said that securities are like electricity: when handled properly, both provide tremendous benefits; but when handled improperly, the results can be catastrophic. Agents engaging in securities activities should ensure full compliance with the securities laws in order to avoid burning their clients—and themselves.
- Scottsdale Insurance Company