Insurable Interest Canadian Insurance Blog

The court’s decision “is instrumentally useful for advocates of stronger fiduciary protections in investment advice to make that case,” Tierney said. Indeed, Ron Rhoades, associate professor of finance at Western Kentucky University and director of its personal financial planning program, said in a recent email that Reg BI “does not impose a fiduciary duty of loyalty” but “a new ‘best interest’ obligation that is still in the process of being defined and applied.” With a new DOL fiduciary rule on the horizon, he said, “the fiduciary battlegrounds will continue to be active spheres where pro-fiduciary advocates will be pitted against firms whose economic models are threatened by the fiduciary standard.” Fiduciary Battleground The Massachusetts Supreme Judicial Court decision “adds additional traction to the ongoing movement in the marketplace, aided by fiduciary advocates and federal and state securities regulators, to move toward a bona fide fiduciary standard,“ according to Rhoades. The most important aspect of the Massachusetts decision, according to Rhoades, “is that states are not preempted from adopting fiduciary standard by federal securities laws,“ nor by the SEC’s adoption of Reg BI. While the Massachusetts decision “is not binding upon other state courts, nor on the federal courts, its precedent may well give...

What You Need to Know Valuing Social Security claiming strategies only according to expected benefits neglects the program’s longevity insurance value, a new paper argues. Reframing claiming decisions accordingly can help individuals facing greater uncertainty over their lifespans make better choices. The research also shows how Social Security’s progressive benefit formula affects demographic and socioeconomic groups differently. Financial advisors who help their clients claim Social Security often base their analysis primarily on the projected cash value of expected benefits. This emphasis, though, misses a key aspect of the program’s benefit to the American public: its value as de facto longevity insurance. The approach also does a disservice to demographic groups with greater life expectancy uncertainty, including Black Americans and those with lower economic attainment. These groups face higher life expectancy uncertainty than white Americans as a whole and, as a result, may benefit from claiming analyses that put more focus on Social Security’s ability to help curb longevity risk. This is the topline finding of a new working paper published by the Center for Retirement Research at Boston College. Because of its progressive benefit structure, which helps those with lower lifetime earnings more, Social Security is the most important federal...

The Financial Industry Regulatory Authority wants to revise its Code of Arbitration Procedure for Customer Disputes to revise and restate lawyer qualifications. FINRA has filed with the Securities and Exchange Commission to restate the qualifications for representatives in arbitrations and mediations in the forum administered by FINRA Dispute Resolution Services, or DRS. The changes would: disallow compensated representatives who are not attorneys from representing parties in the DRS forum; codify that a student enrolled in a law school participating in a law school clinical program or its equivalent and practicing under the supervision of an attorney may represent investors in the DRS forum; and clarify the circumstances in which any person, including attorneys, would be prohibited from representing parties in the DRS forum. According to FINRA’s filing, the broker-dealer self-regulator currently permits parties to arbitrations and mediations in the DRS forum to represent themselves, to be represented by an attorney at law in good standing or to be represented by a non-attorney representative, or NAR. Some NARs receive compensation in connection with their representation of parties. “Compensated NARs receive monetary or non-monetary compensation in connection with the representation of parties — including, for example, advance fees, consulting fees, payments in kind, referral fees...

What You Need to Know Self-directed individual retirement accounts can allow clients to invest in real estate, venture capital funds and even cryptocurrency. It is critical to understand the rules governing self-directed IRAs before engaging in any investment strategy. Violating them has serious consequences. Making an impermissible investment or using IRA funds for a loan will cause the IRA to lose its tax-favored status. It’s common for clients to hold a significant amount of their wealth within individual retirement accounts. It’s also becoming more common for clients to develop an interest in managing their own investments — often, in nontraditional investments like virtual currency.  Self-directed IRAs can allow clients to invest in real estate, venture capital funds and even cryptocurrency if they’re careful. However, it is critical to understand the rules governing self-directed IRAs before engaging in any investment strategy. Violating the prohibited transaction rules has serious consequences, and it’s possible that the IRA could lose its tax-qualified status altogether, generating income tax liability and penalties. Impermissible IRA Investments Certain types of investments cannot be made with IRA funds (whether self-directed or not) because of Internal Revenue Service rules on permitted investments. Impermissible investments include life insurance and collectibles (certain...