A trade association for the insured retirement industry has expressed its opposition to a proposed change to the Securities and Exchange Commission’s custody rule, reports Financial Advisor.
The Insured Retirement Institute (IRI) sent a comment letter to the SEC regarding the “Safeguarding Advisory Clients Assets” rule for investment advisors. The change proposed by the SEC in February would expand the application of the rule beyond client funds and securities to include any client assets in an advisor’s possession or when an advisor has the authority to obtain possession of client assets. The intent is to protect clients against an advisor becoming insolvent or possibly misappropriating funds.
If approved, the IRI said registered investment advisors would be required to find a qualified custodian to have custody of client annuities because insurers do not meet the definition. As a result the institute said RIA clients would be inadvertently impaired from obtaining lifetime income products through advisors, including annuities.
According to the IRI, the SEC proposal imposes stringent requirements related to custody of investor assets on products under which no investor assets are actually in the custody of the RIA or the insurer, including annuities. The institute stated that the ability of many investment advisors to provide advice in their clients’ best interests would be impaired by the new rule.
“These unfortunate outcomes could be avoided entirely through the adoption of an exception to the proposed rule’s qualified custodian requirement that effectively modernizes current SEC guidance,” the IRI said. The institute said such an exception would allow an insurance company to act in lieu of a qualified custodian in connection with all contract types. It pointed out that in the case of annuities, insurance companies and not investment advisors have custody of the clients’ assets.
Other industry trade groups, including the Investment Adviser Association and the Securities Industry and Financial Markets Association, have also criticized the SEC’s plan.
The commission received over 100 comments on the proposed rule change before the comment period expired on Monday.
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