There is an interesting article in the Wall Street Journal about Finra arbitration and whether some of the new rules will help investors with grievances.

Finra or the Financial Services Regulatory Authority is a securities industry regulator (that happens to be funded by the securities industry) that, among other things, governs disputes between investors and brokers.

All annuity sales require an insurance license, and some require both insurance and securities licenses.  Licensing is not a huge challenge, but there is time, effort and cost involved in the process.

The Financial Industry Regulatory Authority ("FINRA") has reported that the number of arbitration cases related to the sale of variable annuity products increased from 47 cases in 2008 to 123 cases in 2009.

Overall, the number of arbitration cases surged 43% to 7,137.

This increase in investor grievances is not surprising given what a difficult year 2009 was for many.

Investment News reports that many of the variable annuity cases involve "products with risky subaccounts and clients over age 60 with 10% - 25% of their net worth in the annuity.

The Securities and Exchange Commission (SEC) has agreed to a two year "stay" on SEC Rule 151A.

SEC Rule 151A is a contentious rule that, from a regulation standpoint, would treat fixed indexed annuities as securities rather than insurance products. 

The securities regulation would be under FINRA oversight.

The stay basically postpones the rule's proposed January 12, 2011 effective date for a period of two years.

Source: Wall Street Journal

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The House Financial Services Committee recently approved a proposed amendment to the Investor Protection Act.

The amendment has raised concern among many as it would provide the Financial Industry Regulatory Authority (Finra) to broaden its regulatory reach and cover investment advisors who are currently regulated by the SEC.

A primary concern is that Finra's relatively weak fiduciary standards would be applied to investment advisors who, at the moment, are subject to higher levels of fiduciary obligation than brokers.

Barron's reports that U.S. investors have filed more securities arbitration claims in 2009 than in all of 2008.  4,991 claims have been filed thus far in 2009.

Mandatory arbitration--which prevents a case from going straight to court--is essentially the sole recourse for investors who feel they have been harmed by a broker or advisor.

The arbitration system is run by Finra, which serves as the self-regulation arm of the securities industry.

The overall success rate of securities arbitration claims has crept-up to 45% through August of this year:

The Securities and Exchange Commission’s (SEC) proposed Rule 151A would change the securities status of indexed annuities from fixed insurance products to registered, securities products.

The proposed rule would have a significant impact on their entire industry landscape.  SEC 151A would affect the way in which insurance companies develop fixed indexed annuity (FIA) products, how distributors sell the products, and ultimately the manner in which consumers purchase FIA products.

This is the first part of an interview with Wharton Professor David Babbel.

Professor Babbel led the fixed indexed annuity study that is discussed in several previous posts on Annuity Digest.  These posts can be accessed by clicking here.

Part 2 of this interview will be posted later this week.  Annuity Digest would like to thank Professor Babbel for spending time with us for the interview.