Securities Law Blog

According to a published report in Investment News, a Florida Senate bill that would levy heavy penalties on agents and financial advisers who make fraudulent annuity sales has moved closer to becoming law. The Safeguard our Seniors Act, or SB 1372, on April 2, 2009 moved to Florida’s Policy and Steering Committee on Ways and Means, placing it a step away from a full Senate vote.

Under the bill’s original provisions, which would apply to consumers over age 65, surrender periods — the length of time the investor must hold the annuity — would have been cut to five years. It also set the maximum surrender fees, which investors must pay for exiting the product too soon, at 5% and reduced the fee 0% by the end of the fifth policy year. Additionally, the original bill also extended the free-look period to 60 days from the normal 14-day limit. In its new form, however, legislators have loosened the restrictions on the annuity sales, allowing for surrender charges to go as high as 10%, with the charge to fall by one percentage point each year, so that there is no surrender fee at the end of the 10th policy year.

Under the revised bill, the surrender fee changes don’t apply to accredited investors, defined as individuals with a net worth of greater than $1 million or with an annual income of more than $200,000 in each of the past two years, or $300,000 a year in joint income. The amended bill also cuts the free-look period to 30 days. The original bill also made “twisting” and “churning” annuities a third-degree felony punishable by up to five years in prison. The penalty has been expanded so as to cover fraudulent conduct in connection with the sales of all financial products. The American Council of Life Insurers in Washington, the Florida chapter of the Falls Church, Va.-based National Association of Insurance and Financial Advisors and the National Association for Fixed Annuities of Milwaukee had combined efforts to fight the early version of the bill. NAIFA-Florida had also asked state finance chief Alex Sink to consider a maximum 10-year surrender period and 10% surrender charge limit.