In a statement dated Jan. 10, the Illinois Securities Department clarified that fixed indexed annuities (FIAs) and the agents who sell such products are not subject to securities registration under Illinois law.
The letter was in response to an action the state initiated against Senior Financial Strategies, Inc., dba Pinnacle Investment Advisors, back in 2008. The owners of Senior Financial Strategies, Susan and Thomas Cooper, were subsequently fined $10,000 for allegedly violating Illinois securities law by advising clients to liquidate annuities or IRAs to fund the purchase of FIAs.
That action, according to the National Association of Fixed Annuities (NAFA) “implied indexed annuities might be considered ‘investment plans’ subject to state securities laws.”
NAFA had worked with Fidelity & Guaranty Life Insurance Co. on the issue and filed an amicus brief in court to clarify the order and started a dialogue with the Illinois Securities Department. In 2010, the fixed indexed annuity industry was able defeat the SEC’s 151A proposal, which, if enacted, would have classified FIAs as securities products.
In the letter handed down this month, David Finnigan, senior enforcement attorney for the Illinois Secretary of State, stated he “would not recommend enforcement action if Fidelity & Guaranty Life and/or its insurance agents offer and/or sell indexed annuity contracts without registration” under Illinois securities law.
However, Finnigan emphasized that the no-enforcement action did not constitute a legally binding opinion of the Secretary of State and was based on representations made by the company that it is licensed to sell insurance in Illinois, the indexed annuities are issued and guaranteed by the company, the indexed annuities are approved for sale by the Illinois Insurance Department, and the company’s insurance agents are licensed by the Illinois Insurance Department.
NAFA, in a release that detailed the recent letter, said while the statement “puts to rest concerns about the status of fixed indexed annuities under Illinois securities law,” it nevertheless cautioned agents that the “no-action statements contain caveats and limitations and should be reviewed carefully with their own legal counsel to determine how it applies to their own facts and circumstances.”