Introduction

1. Introduction
2. Syllabus/Outline
3. Florida Statute 627.4554 - Annuity Investments by Seniors

Unit One - Purpose - (10 minutes)

1. Discuss purpose of new legislation governing the sale of annuities to seniors
1. Ethical violations
1. Fraudulent signatures
2. Use of fake or misleading designations by Agents
3. Twisting
4. Churning
2. Complaints
1. A growing number of cases where Seniors have been mislead
2. DFS - 351 investigations in 2006-2007 (CFO Press Release 3/18/08)
3. New cases are increasing annually

Unit Two - Definitions - (10 minutes)

1. Annuity Contract - Per FS 627.4554
1. Fixed
2. Equity-Indexed
3. Fixed Equity-Indexed
4. Variable
2. Suitability
3. Ethical Conduct
4. Recommendation - Per FS 627.4554
1. Defined as advice provided by an insurance producer to a Senior consumer that results in purchase or exchange of an annuity
2. Could also be advice provided directly by the insurance company to a Senior Consumer, that results in the purchase of exchange of an annuity
3. The purchase or exchange of an annuity a\is as a result of the advice given
5. Senior Consumers - Per FS 627.4554
1. 65 or older
2. Joint purchase - if any of the parties are 65 or older

Unit Three - Products - (30 minutes)

1. Fixed Annuities
1. Fixed dollar income payments
2. No loss to principal
2. Equity Indexed Annuities (including Market Value Adjusted Annuities)
1. An annuity with the potential for market returns, with a guaranteed minimum interest rate.
2. Factors unique to Equity Indexed Annuities:
1. Interest rate caps
2. Participation rates
3. Index crediting methods
3. Fees and Charges:
1. Surrender charges
2. Administration fees
3. Market value adjustments
4. Asset fees
3. Variable Annuities
1. Value depends on value of the underlying investments
2. Variable payouts or fixed payments
4. Group Annuities
1. Used to fund many types of tax-sheltered retirement plans
2. May be sponsored by employers, unions or other groups
3. May be governed by the laws of another State, since the annuity may have multi-state membership
4. Lower costs than individual annuities

Unit Four - Duties of Insurer and Insurance Agents - (30 minutes)

1. Determine objectively reasonable basis for believing the recommendation is suitable for the consumer on the basis of:
1. Facts disclosed about the Senior consumer's investments and other insurance
2. Financial Situation
3. Needs
2. At a minimum the agent must collect the following information:
1. Personal information
1. Age and sex of the parties to the annuity
2. Age and number of any dependents
3. Investment objectives
4. Applicant's risk tolerance
2. Current financial situation
1. Existing assets, including investment holdings
2. Applicant's annual income
3. Tax status (i.e. tax bracket, filing status, etc.)
4. Applicant's liquid net worth and liquidity needs
3. Future Financial Considerations
1. Medical care concerns
2. Retirement age preference
3. Endowments
4. Financial support of family members
4. Intended use of the annuity
5. Source of funds to be used for purchase of annuities
6. Other financial needs
7. Any other information used or considered by the agent or insurer in making recommendations to consumers regarding the purchase or exchange of an annuity contract
8. Refer to DFS Annuity Suitability Questionnaire to ensure minimum required information is collected
3. If currently holding an annuity or annuities, determine:
1. Type of contract(s)
2. Issue date(s)
3. Maturity date(s) or Annuitization date(s)
4. Allocation of funds within contract
5. Terms of Surrender Charges
1. Dollar Amount and surrender charge percentage
2. Number of years in length
3. Comparison to life expectancy of applicant
4. Waiver of surrender charge provision
6. Contract riders or endorsements
7. Liquidity of Contract
1. Prior to maturity
2. At maturity
4. If exchanging an annuity provide a comparison of difference between contracts:
1. Benefits
2. Limitations
3. Terms
4. Fees and/or charges
5. Qualified or Non-Qualified
6. Refer to DFS Disclosure and Comparison Form
5. Disclosure
1. Crediting Methods and Potential Tax Implications
1. Source of Interest Credits
2. Income Taxation of Interest Credits
3. When income tax deferral is advantageous
4. Crediting Formulas
5. Guaranteed Interest Credits
2. Risk Factor
1. Loss of principal
2. Known versus expected interest
3. Reallocation limitations
4. Changes in market or company financial conditions
3. Refer to DFS Disclosure and Comparison Form (This form will be part of FAC 69B-162.011 which is currently under rule development. The questionnaire will be available when the rule development process is complete.)
4. If an Insurer, Insurance Agency or Managing General Agent, develop supervisory system to ensure recommendations are appropriate and in accordance with rules set forth in FS 627.4554
1. Maintaining written procedures - designed to achieve compliance with the Senior Suitability Law
2. Conducting periodic reviews - conducted to insure that recommendations made by Agents are suitable
5. If an Insurance Agent, develop procedures to ensure recommendations are appropriate and in accordance with rules forth in FS 627.4554
1. Maintaining written procedures - designed to achieve compliance with the Senior Suitability Law
2. Conducting periodic reviews - conducted to insure that recommendations made by Agents are suitable

Unit Five - Ethical Considerations - (10 minutes)

1. Policy Holder Bill of Rights - FS 626.9641
1. Creates standards to be followed by the Department of Financial Services
2. Review the 8 Policyholder rights
2. Agent's Code of Ethics - Rule 69B-215.210
1. NAIFA - Code of Ethics spells out the professional duty the Agent has to the client, as well as to the insurance company
2. Rule 69B-215.210 - The scope of the Administrative rule is to define Life Insurance as a public trust and to encourage Agents to be fair in their dealings with clients and colleagues
3. Agent's fiduciary responsibility to client
1. Does applicant understand basic concepts of annuities?
2. Does applicant have sufficient assets to meet or exceed current financial objectives?
3. Are other financial vehicles more suitable to meet the applicant financial objectives?
4. Is the sale in the best interest of the client and his family?
5. Does the transaction make sense?
6. Discussion of Case Law
1. Fiduciary Responsibility - The courts have confirmed that an Insurance Broker has a fiduciary relationship with an insured. In a Florida court case, the Broker had a responsibility to inform the annuity holder of the insurance company's deteriorating financial condition
2. Commissions - A Florida court decided that it was not a breach of fiduciary duty when a licensed Life Agent did not disclose to the purchaser the amount of commissions the Agent would receive for selling the policy

Midterm Review and Quiz (For Grade)

Unit Six - Mitigation of Responsibility - (10 minutes)

1. PER F. S. 627.4554 (5)
1. The Office may order an insurer to take corrective action for any Senior consumer harmed in violation of the law
2. The Department may order:
1. An insurance Agent to take corrective action for Senior consumers harmed
2. A MGA or insurance agency to take corrective action for any Senior consumers harmed in violation of the law
3. A penalty for violating the Florida Insurance Code may be reduced or eliminated if the corrective action was taken promptly after the violation was discovered
2. Pertains to insurer, agent and/or MGA - Insurance Agents, Managing General Agents, and Independent Agencies all have a requirement to follow the law
1. DFS may order responsible party to take reasonably appropriate corrective action including but not limited to:
1. Rescission of policy or contract and;
2. Full refund of premiums paid or accumulation value, whichever is greater
2. Discussion of what constitutes harm to a consumer - The Federal Trade Commission defines it as an Unfair Trade Practice if:
1. It offends public policy
2. It is immoral, unethical, oppressive or unscrupulous
3. It causes substantial injury to consumers (or competitors or other business persons)
4. Case Law: Words and sentences can be technically true, but be framed as to mislead or deceive people into purchasing something they would not otherwise do
5. Case Law: False and misleading statements can mislead the public and unfairly divert business away from competitors
6. Case Law: Defines an unfair practice as: one that 'offends public policy' and one that is 'immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers'

Unit Seven - Unfair Methods of Competition and Unfair or Deceptive Acts - (10 minutes)

1. Churning FS 626.9541 (1)(aa)
1. Defined as the practice of using policy values in an existing life insurance policy or annuity, to purchase another insurance policy or annuity with the same insurer, for the purpose of earning additional premium or compensation
2. Replacement form required to be completed by insurance company, to show applicant what they will lose by using existing policy values to purchase a new policy
3. Insurance Companies required to adopt written procedures to avoid the practice of churning
2. Twisting FS 626.9541 (1)(l); 69B-215.215 F.A.C
1. Defined as knowingly making fraudulent or misleading comparisons of an insurance policy or company, for the purpose of inducing a person to lapse or surrender an insurance policy and take out a new one with another insurer
2. Declared to be unethical
3. Fraudulent signatures FS 626.9541 (1)(ee)
1. Defined as willfully submitting to an insurer on behalf of a consumer an insurance application or policy document with a fraudulent or false signature
4. Unlawful or deceptive use of designations FS 626.9541 (1)(ff)
1. Cannot use designation to imply special knowledge or training
2. Use of term Financial Advisor
3. Licensee cannot imply they are qualified to recommend financial products if they are not
4. Limited use of other designations

Unit Eight - Penalties - (10 minutes)

1. Per F. S. 626.9521 (3)(a)
1. Twisting - Misdemeanor of the first degree and administrative fines
2. Churning - Misdemeanor of the first degree and administrative fines
2. Per F. S. 626.9521 (3)(b)
1. Fraudulent or false signatures - Felony of third degree and administrative fines
3. Penalties related to DFS Rule 69B-231
1. Twisting - Suspension 9 months
2. Churning - Suspension 9 months
3. Other violations of F.S 626.9541 range from 3 months to 9 months suspension

Unit Nine - Education Requirements - (10 minutes)

1. FS 626.2815 Continuing education requirements - new requirements
1. Application
1. Any person holding a license to solicit or sell life insurance in FL
2. Must complete a minimum of 3 hours in continuing education, approved by the department, on the subject of suitability in annuity and life insurance transactions
2. Exceptions
1. A licensee may use the hours obtained under this paragraph to satisfy the requirement for continuing education in ethics under paragraph (a).

Unit Ten - Recordkeeping - F.S. 627.4554 (6) - (10 minutes)

1. Maintain files for five years
2. Records that should to be maintained
1. Applications
2. Questionnaires
3. Illustrations
4. Correspondence
5. Account review documents
6. Account statements
7. Any other documentation used in making the recommendations that were the basis for the transaction

Unit Eleven - Representing Unauthorized Entities - (10 minutes)

1. Florida Unauthorized Entities Statement
2. Prohibited under F.S. 626.901
1. Defines representing or aiding an unauthorized insurer
2. Agent is responsible for unpaid losses or claims
3. Unauthorized Entities Engaging in Insurance Are a Serious and Growing Problem in FL
4. Agents Representing Unauthorized Entities Place Themselves and Their Clients at Risk
5. Penalties for Agents Representing or Aiding an Unauthorized Insurer
6. Agent requirements to perform due diligence
7. Account review documents
8. Account statements
9. Any other documentation used in making the recommendations that were the basis for the transaction

Unit Twelve - Case Studies - (20 minutes)

1. Case Study #1
2. Case Study #2
3. Case Study #3
4. Case Study #4

Final Review and Exam (For Grade)