Bill seeks to prevent ex-stock brokers from peddling insurance investments [CT Post]

May 23, 2014

Tim Loh, CT Post

State lawmakers passed a bill designed to prevent former stock brokers who have been stripped of their licenses from continuing to sell financial products with insurance licenses.

The bill, passed earlier this month, would require the state banking commissioner to provide monthly reports to the state insurance commissioner listing the names of securities brokers whose licenses have been denied, suspended or revoked over the last 10 years.

The insurance commissioner could then suspend, revoke or decline to renew existing insurance licenses of those who appear on the list. Additionally, the insurance commissioner could deny a license to an applicant whose name is on the list.

While there are no documented cases of such abuse in Connecticut, the move — coming from a powerhouse of a state in the insurance industry — should send a clear signal to other states that cooperation between banking and insurance regulators represents good public policy, said State Sen. Kevin Kelly, R-21, of Stratford, who spearheaded the bill.

Casting a wider net

“I could certainly see a loophole where somebody who is not trustworthy, has breached fiduciary duties in the securities area, could now get a comparable license, get that indicia of `Good Housekeeping’ back, and get back right out on the streets selling financial instruments to people that aren’t knowledgeable of what’s going on,” Kelly said in a phone interview Thursday.

Such consumers, Kelly added, might think: “OK, you’ve got the license to do this, the state has some semblance of regulation over this, so you must be trustworthy, you passed some tests, you’ve got that `Good Housekeeping seal of approval.’ ”

Kelly decided to pursue the bill after reading a Wall Street Journal article in January in which the North American Securities Administrators Association estimated there are at least 1,000 cases nationwide of former securities brokers having insurance licenses. In response, states like Alabama, Utah, Florida and Maine have been working to improve cooperation between banking and insurance regulators, the story said.

The story recounted one instance in which an Indiana insurance salesman, who’d lost his securities license in the mid-’90s, began several years ago selling promissory notes with a guaranteed 8 percent annual return — only to stop paying the yield after just two years. The ruse cost one 64-year-old Indiana man $385,000, or nearly his entire life savings, according to the story, which cited court documents and interviews.

In March, at a public hearing in Hartford, state Banking Commissioner Howard F. Pitkin and Insurance Commissioner Thomas B. Leonardi initially spoke out against the bill, saying they already have a close working relationship and share such information. They also highlighted portions of the proposed text that were out of step with national standards. Those portions were subsequently fixed so the bill aligned with national standards.

Later, Leonardi asked that the bill be widened to target not just potentially unscrupulous life-insurance salespeople, Kelly said, but also producers of auto, home and other types of insurance.
McLachlan, Frantz as co-sponsors

“All around, the department likes the bill in its current form,” said Donna Tommelleo, a spokeswoman for the insurance department, in a phone interview Thursday. “It’s strong consumer protection.”

Warren Ruppar, president of the Independent Insurance Agents of Connecticut, which represents over 400 member agencies and their 3,600 employees, similarly changed his objection to the bill after the amendments were made. “We’re in support of it now,” Ruppar said in a phone interview Thursday.

In 2013, the Department of Banking revoked four securities licenses and issued one suspension order.
The bill now requires Gov. Dannel P. Malloy to sign it into law. The governor will review it once it’s transmitted to his office, a spokesman said.

State Sen. Michael McLachlan, R-24, of Danbury, and State Sen. L. Scott Frantz, R-36, of Greenwich, both co-sponsored the bill and described it as good public policy in phone interviews.

“It just seemed like a no-brainer, like of course we should fix this loophole,” McLachlan said.

“Insurance and banking are so closely related now, especially if you take into account life insurance, and other forms of insurance,” Frantz said. “Essentially it’s a financial services product, which makes it a banking thing, but it’s also insurance. It’s a hybrid, so the logic is there. You want to coordinate between those two agencies.”