An investment adviser representative (IAR) at a state-registered firm is approached by a client who wishes to purchase an annuity. The IAR holds both a Series 65 license and a state insurance license. Which of the following statements regarding the IAR's compensation for recommending and selling this annuity is most accurate?
- AThe IAR is prohibited from receiving a commission for the annuity sale due to their fiduciary duty as an IAR.
- BThe IAR may receive a commission from the sale of the annuity, provided it is fully disclosed to the client.
- CThe IAR must only charge advisory fees, even if they hold an insurance license, if they are acting as an IAR.
- DThe IAR may receive a commission if the annuity is recommended as part of a fee-only financial plan.
Show answer & explanationAnswer & explanation
Correct answer: B. The IAR may receive a commission from the sale of the annuity, provided it is fully disclosed to the client.
If an IAR holds both an investment adviser representative license and an insurance license, they may receive commissions for the sale of insurance products (like annuities) that are recommended as part of their advisory services, provided that such compensation is fully and clearly disclosed to the client. This is a common 'dual registration' scenario, and disclosure is key.
Why the other options are wrong
- A. This is incorrect. While fiduciary duty requires acting in the client's best interest, it doesn't prohibit commission-based compensation if properly disclosed and managed.
- C. This is incorrect. An IAR can receive commissions for insurance products if properly licensed and disclosed, even while acting in an advisory capacity, as long as the recommendation is suitable and disclosure is made.
- D. Recommending a commission-based product as part of a 'fee-only' plan creates a conflict. If commissions are earned, the plan is not truly fee-only, and this would be misleading.
IAR Compensation - Dual Registration (Commissions)
An Investment Adviser Representative (IAR) who is also licensed to sell insurance products (dual registration) may receive commissions for the sale of those products, provided that the compensation arrangement is fully and clearly disclosed to the client, and the recommendation is suitable.
- Dual registration is permitted.
- Commissions for insurance products are allowed if properly licensed.
- Full and clear disclosure of all compensation is mandatory.
- Fiduciary duty still applies; recommendations must be suitable.
Memory trick: Dual Roles, Dual Pay: Disclose All, Come What May!