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Ethical Requirements
Code of Ethics DFS
Code of Ethics
[Source: §626.797]
UNLICENSED INSURANCE ACTIVITY Every licensee who has knowledge of unlicensed insurance activity is required to report such activity to the Department. In the case of unlicensed insurance activity by Multiple Employer Welfare Arrangements (MEWA), labor leasing organizations, and purportedly collectively bargained plans, the following information should be reported: -Any known organizational information; [69B-230-033]
Marketing Regulatory and Ethical Guidelines for Licensed Florida Insurance Professionals Military Sales Practices – United States Armed Forces (USAF) The standards of this chapter are intended to protect active duty service members from dishonest and predatory insurance sales practices by declaring certain identified practices to be false, misleading, deceptive, or unfair. It applies only to the solicitation or sale of life insurance or annuity products by an insurance producer to an active duty service member of the USAF. [Source: Chapter 69B-240.001] Definitions · “Active Duty” means full-time duty in the active military service of the U.S. and includes members of the National Guard and Reserve while serving under orders for active duty, full-time training, or a drill status in the National Guard or Reserves. · “Department of Defense (DoD) Personnel” means all active duty service members and all civilian employees, including non-appropriated fund employees and special government employees, of the Department of Defense. · “Military Installation” means any federally owned, leased, or operated base, reservation, post, camp, building, or other facility to which service members are assigned for duty, including barracks, transient housing, and family quarters. · “MyPay” is a Defense Finance and Accounting Service (DFAS) web-based system that enables service members to process certain discretionary pay transactions or provide updates to personal information data elements online. · “Service Member” means any active duty officer or enlisted member of the USAF. · “Side Fund” means a fund or reserve, part of or otherwise attached to, a life insurance policy (excluding individually issued annuities) by rider, endorsement, or other mechanism that accumulates premium or deposits with interest or by other means. The term does not include: · Accumulated, cash value, or secondary guarantees provided by a universal life policy; · Cash values provided by a whole life policy, which are subject to standard nonforfeiture law for life insurance; or A premium deposit fund that: * Contains only premiums paid in advance that accumulates interest; * Imposes no penalty for withdrawal; * Does not permit funding beyond future required premiums; * Is not marketed or intended as an investment; and * Does not carry a commission, paid or calculated
Definitions Chapter [69B-240.001(4)] “United States Armed Forces” (USAF) means all components of the Army, Navy, Air Force, Marine Corps, and Coast Guard. The following acts or practices when committed on a military installation by an insurance producer with respect to in-person, face-to-face solicitations of life insurance are declared to be unfair or deceptive acts or practices: · Soliciting the purchase of life insurance products “door-to-door” or without first establishing a specific appointment for meeting with the prospect. · Soliciting service members in a group, mass, or captive audience where attendance is mandatory. · Making appointments with or soliciting service members during scheduled duty hours. · Making appointments with or soliciting service members in barracks, day rooms, unit areas, or transient personnel housing or other areas where the installation commander has prohibited solicitation. · Soliciting the sale of life insurance without first obtaining permission from the installation commander or the commander’s designee. · Posting bulletins, notices, or advertisements, not authorized by the installation commander. · Failing to present DD Form 2885, Personal Commercial Solicitation Evaluation, to service members solicited, or encouraging service members solicited, not to complete or submit a DD Form 2885. · Accepting an application for life insurance or issuing a policy of life insurance on the life of an enlisted member of the USAF without first obtaining for the insurer’s files a completed copy of any required form which confirms the applicant has received counseling or fulfilled any other similar requirement for the sale of life insurance established by regulations, directives, rules of the DoD, or any branch of the USAF. · Using DoD personnel as a representative or agent in an official or business capacity with respect to the solicitation or sale of life insurance to service members. · Participating or using another insurance producer to participate in any USAF sponsored education or orientation program.
The following acts or practices by an insurance producer constitute corrupt practices, improper influences or inducements and are declared to be unfair or deceptive acts or practices prohibited by Florida statutes regardless of the location where committed: · Submitting, processing, or assisting in the submission or processing of any allotment form or similar form used by the USAF to direct a service member’s pay to a third-party for the purchase of life insurance. · Receiving funds from a service member for the payment of premium from a depository institution with which the service member has no formal banking relationship. · Employing a device or method or entering into an agreement where funds received from a service member by allotment for the payment of insurance premiums are identified on the service member’s Leave and Earnings Statement or equivalent or successor form as “Savings” or “Checking” and where the service member has no formal banking relationship. · Entering into an agreement with a depository institution for the purpose of receiving funds from a service member where the depository institution agrees to accept direct deposits from a service member with whom it has no formal banking relationship. · Using DoD personnel as a representative or agent in an official or unofficial capacity with respect to the solicitation or sale of life insurance to service members, or their families. · Offering or giving anything of value to DoD personnel to procure their assistance in encouraging, or facilitating the solicitation or sale of life insurance to another service member. · Offering or giving anything of value to a service member for attending any event where an application for life insurance is solicited. · Advising a service member to change his or her income tax withholding or state of legal residence for the sole purpose of increasing disposable income to purchase life insurance. · Making any representation, or using any device, title, descriptive name, or identifier that has the tendency or capacity to confuse or mislead a service member into believing the insurer, producer, or product offered is affiliated, connected to, associated with, endorsed, sponsored, sanctioned, or recommended by the U.S. Government, the USAF, any state, federal agency, or government entity.
Definitions · Nothing in this rule is to be construed to prohibit a person from using a professional designation awarded after the successful completion of a course of instruction in the business of insurance by an accredited institution of higher learning. Such designations include: Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC), Certified Financial Planner (CFP), Master of Science In Financial Services (MSFS), or Masters of Science Financial Planning (MS). · Soliciting the purchase of any life insurance product through the use of or in conjunction with any third-party organization that promotes the welfare of or assists members of the USAF in a manner that has the tendency to confuse or mislead a service member into believing the insurer, insurance producer, or insurance product is affiliated, connected or associated with, endorsed, sponsored, sanctioned, or recommended by the U.S. Government or the USAF. The department has authority to investigate the affairs of anyone to whom this rule applies. If an investigation demonstrates a violation has occurred, procedures and penalties allowed by state statute are enforced.
Understanding Industry Products & Suitability of Sales and Services The purpose of this section is to require insurers to set standards and procedures for consumer recommendations which result in transactions involving annuity products, and to establish a system for supervising such recommendations in order to ensure that the insurance needs and financial objectives of consumers are appropriately addressed at the time of the transaction. [Source: 627.4554(1)] DEFINITIONS: “Annuity” means an insurance product under state law which is individually solicited, whether classified as an individual or group annuity. “FINRA” means the Financial Industry Regulatory Authority or a succeeding agency. “Recommendation” means advice provided by an insurer or its agent to a consumer which would result in the purchase, exchange, or replacement of an annuity in accordance with that advice. “Suitability information” means information related to the consumer which is reasonably appropriate to determine the suitability of a recommendation made to the consumer, including the following: Age. *including, but not limited to, willingness to accept nonguaranteed elements in the annuity
Age of the Buyer Fixed-rate annuities are very safe financial vehicles. Because they are low risk, growth may be less than higher-risk investments, but those nearing retirement are very susceptible to risk, so they remain a good choice for those who are older. Variable annuities have a higher risk than their fixed-rate annuity counterparts and generally are not recommended for those nearing or in retirement. Age as a suitability consideration is also tied to goals. Annuities would not be suitable for a young couple trying to save for a new car, for example. When the goal is retirement, and the buyer plans to fund the annuity over twenty years, they work very well. Older people often look to annuities when they have pension funds to reinvest for retirement. Annual Income One of the problems seen when people enter retirement is a false sense of financial security. Individuals may look at their $50,000 in savings, for example, and believe they are well situated. In fact, that amount is very inadequate when considering the number of years the retiree will live. Longevity risk is very real in retirement. Longevity risk is the risk of living longer than the money lasts. If the retiree over-spends initially, it will affect the remainder of their retirement adversely. When annual income is insufficient the annuity’s goal might be to produce additional retirement income. An annuitized annuity may provide the additional annual income needed without the fear that the retiree will overspend, although that can still happen through credit card use and inappropriate spending. Initiating a car loan, for example, could cause financial stress if income is inadequate. Financial Situation and Needs The financial resources used for funding the annuity must make sense. If the buyer has a nest egg and wants to put the entire amount into an annuity, leaving no cash reserves, it would not make sense to tie the money up in a nonliquid annuity. Retirees need to have a cash reserve for emergencies. If the refrigerator stops working or the car needs repairs, the retiree must have the capital to handle the emergency. Tying up all funds in an annuity would not be logical. Annuity Funding There is another reason for agents to ask where funds are coming from: buyers should not place funds into an annuity if the funds will be needed in the near future. Annuities are long-term vehicles. As such, they are not suitable for short-term requirements. One of the most difficult jobs an agent faces is educating those who have preconceived ideas that are incorrect. It is not easy to change what someone believes is true. Therefore, the financial experience of the investor can be either a major disadvantage or advantage, depending upon how much experience the buyer has. Those with experience are typically easier to present new ideas to because they already understand investing. Individuals with little or no financial experience are often fearful of new financial ideas. While the agent’s presentation may seem simple to the seller, the buyer may be viewing it differently. If he or she has no financial experience the annuity presentation may be only partially understood, leading to misunderstandings that the agent may not even realize exists. Those misunderstandings can cause both the buyer and seller problems in the future. The buyer may believe he or she has made their financial standing better than it actually has, and the seller may find themselves facing a lawsuit that is difficult to defend. Agents must ask questions and determine the financial experience of the buyer as a means of determining how much information is necessary to cover. Certainly, it is necessary to ask questions to determine product suitability, but it is also necessary as self-protection for agents. It is always better to spend more time than actually necessary than too little time during the selling process. It is always better to over-educate the buyer than under-educate him or her. Annuities often work very well for retirement, but that is impossible to assess without enough information. When it relates to financial experience, asking questions and carefully listening to the answers received is vital. Financial Objectives Financial objectives require math; figures must be put on paper, looked at, studied, and viability established. It is often the agent that must bring reality into the desires. While most goals are obtainable, they often mean the person must give up some luxuries today in pursuit of financial goals at retirement. Typically, insurance producers find that their clients have never looked at their objectives from a math perspective. In other words, seldom do people realize how much they should have saved. Intended Use of the Annuity Time Horizons Time horizons are always important when looking at retirement goals. An individual who will receive a lump sum from their employer upon retirement which can be reinvested will view time horizons differently than a person looking at retirement with only his or her personal savings in hand. When goals cannot be reached by age 60, time horizons may need to be extended. Reality must always be part of the equation when it comes to retirement. Longevity estimates are also important. Few people adequately plan for the number of years they will live in retirement. The problem is simple: they fail to do the math. A person who lives today on $100,000 per year must multiply that amount out thirty years to adequately plan. Inflation is a factor that is often ignored as well.
Existing Assets Assets may be either liquid or nonliquid, but liquid assets are often the type preferred when agents are placing products since funds are readily available for deposit. Life insurance products, such as annuities are assets, even though they are typically not liquid in nature. Liquid assets are things that can be converted into cash quickly, with minimal impact on the amount received. Assets can include money market instruments and government bonds. The most liquid market is the foreign exchange market because trillions of dollars exchange hands daily, making it impossible for any one individual to influence the exchange rate. Nonliquid assets are things that can be cashed in, so to speak, but not quickly and maybe not even easily. Nonliquid assets, such as annuities, cannot be easily accessed for an emergency expense. Emergency expenses usually require immediate cash. Liquidity Needs or Requirements Financial planners advise their clients to keep an emergency fund along with their rainy-day fund. The rainy-day fund, which may have a variety of names, is kept to fund household expenses in case of job loss. It should have enough funds to pay for between three and six months of living expenses in case of a job loss. An emergency fund is not intended to fund long-term unemployment, but rather to cover expenses that are not part of the monthly costs of living. Emergencies, requiring an immediate need to pay an unexpected bill, might include buying a new refrigerator or repairing a car. Retirees seldom need a rainy-day fund since they no longer depend on earned income, but they do need an emergency fund to cover costs of items they had not anticipated. Retired homeowners especially need this type of fund because home repairs can be high and are certainly not included in their monthly maintenance bills. When agents are recommending annuity products, they must be aware of potential emergency needs. Tying up all a client’s cash in an annuity would be unsuitable in all cases. Determining how much should be in an emergency fund is difficult. A new roof can cost $10,000 or more whereas a new refrigerator may only require $1,000. It is always better to have more in an emergency fund than less. Liquid Net Worth Net worth refers to an individual’s wealth or lack thereof. Net worth is the value of the assets owned less the debts owed. Assets include investments, life insurance products, real estate, cars, and even clothing and furniture. It is the total of all that is owned, minus the debts that are unpaid. For example, a client has a high-quality leather couch that he paid $3,000 for, but he still owes $2,000 to the store he bought it from. That means he only has (ignoring depreciation for this example) $1,000 in assets from the couch. In reality, he or she would not have $1,000 in assets because the moment the couch left the store, it lost value. An annuity does not lose value as the couch does, so $5,000 in an annuity translates to $5,000 in assets. When determining net worth, most professionals only look at assets that retain their value and not those that lose value. However, clothing, furniture, and other items can be considered as part of a person’s net worth since their loss would mean replacement, and replacing the items requires money to do so. To properly plan for retirement many things must be considered. Investors must know their net worth today, so they know what they have to work with. When annuities are being considered it is important to have liquid assets available since annuities are not liquid vehicles. It is not possible to withdraw funds easily from annuities, and that was the intention when they were created since they are intended to be long-term investments. Risk Tolerance Some types of annuities have more risk than other types. The riskiest annuity is the variable annuity; return is variable, not guaranteed. Professionals recommend fixed-rate annuities for retirees since risk is not desirable by the time retirement has arrived. There are various types of investments. Cash and cash equivalents are low risk investments that can be easily liquidated into cash, with mandatory holding periods of 12 months or less. These investments provide low returns, so there is little protection against loss to inflation, but for the retiree, they are often the wisest choice since there is no high risk involved. As we know, annuities are not easily liquidated so they are not considered cash or cash equivalents. It might surprise people to know that cash, and cash equivalents do not necessarily mean money folded in your pocket or purse. In fact, with the prevalent use of credit cards, few people today actually carry much cash with them. However, cash also means money that is in savings accounts, money markets, and certificates of deposit at the local bank. Tax Status State and local governments all over the United States raise money through taxation, whether that happens to be sales tax, lodging tax (paid when you rent a hotel room), and other taxes. While there is taxation that affects people of all ages, such as sales tax and real estate tax, any type of tax lessens spendable income. For those with an individual retirement account (IRA) or access to an employer 401(k) qualified retirement plan, a lower tax rate could make pre-tax retirement account contributions less attractive and might make it more likely that people will take taxable distributions. The IRS 10 percent early withdrawal penalty is likely to remain.
Before purchasing or exchanging an annuity by a senior, an insurance agent or an insurer, unless exempt or required by FINRA to perform an alternative suitability analysis, must use Florida’s Annuity Suitability Questionnaire (http://www.myfloridacfo.com/agents/Licensure/Forms/docs/DFS-H1-1980.pdf) to obtain information in order to determine the suitability of a recommendation. Before executing a replacement or exchanging an annuity by a senior, the insurance agent or insurer must also provide contract comparison information to the senior consumer utilizing the Disclosure and Comparison of Annuity Contracts. The Department will approve an insurer’s modification to the forms provided if:
· The forms contain all the information the department forms contain; · The typeface size is 12-point; · Additional material added to the form does not obscure the information required, or rearrange the required information in such a way as to make it more difficult to find or understand; · The revised form does not contain misrepresentations or misleading statements.
Insurers can modify the form to use check boxes for indication of investment experience and risk tolerance, but cannot substitute check boxes for other items on the form.
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Chapter 4 Contents
Ethical Requirements |
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