The applications for the Allianz Index Advantage+ products are now available in Docupace and should be used for all new Index Advantage business. If reps have questions on Index Advantage+ variable annuity, they can contact Allianz, click here for the Contact Map and List.
Allianz Contact Map and List
TC133581(0523)1
FINRA Supervision Rule 3110 outlines certain criteria for branch and non-branch offices, and inspection requirements. During COVID, FINRA offered temporary relief regarding where associated persons were located since may were working in remote or who locations during the pandemic. As a result of COVID, there have been permanent changes in how people work. Many more people are working from home more often or completely.
As a result of this, we are providing additional guidance regarding what is considered a branch office and a non-branch location.
BRANCH OFFICES
FINRA defines a branch office as any location where one or more associated persons regularly conducts the business of effecting any transactions in or inducing or attempting to induce the purchase or sale of, any security, or is held out as such.
All locations, including residences, where securities business, as defined by FINRA, is conducted must be registered as a FINRA branch office and are subject to supervision via on-site examinations. This includes, but is not limited to, locations where:
If someone is partially retired and does not work a full work week, a location where they spend the majority of their time when they are working would be considered a branch.
NON-BRANCH LOCATIONS
FINRA defines several exemptions from the branch office registration requirement. While they are considered “non-branch locations,” they are subject to supervision, including on-site examinations (less frequently than branch offices). Since more individuals are working from home than before, the focus is on Primary Residence Non-Branch Locations. These locations must be disclosed to your Branch Office Supervisor and ESI Licensing, prior to engaging in activities at the location. Details of the Primary Residence Non-Branch Locations exemptions are on the attached Non-Branch Locations Exemption Reference Chart and include definitions, examples, and acceptable activities at these locations.
To qualify as a non-branch:
If any of the above non-branch criteria cannot be met, the location must be registered as a branch office. If a producing RR’s primary residence is the only location from which the RR does business, it must be registered as a branch.
REPORTING OF BRANCH AND NON-BRANCH LOCATIONS
If your primary working location meets the definition of either a branch office or a non-branch location, but is not designated as such, please complete the Location Disclosure Form and provide it to your supervisor, who will review and forward it to ESI Licensing. ESI Licensing will review your request, determine the office type, and record the location for tracking and Firm records. Also, any change or closure of a branch or non-branch location must be reported promptly.
QUESTIONS
Please feel free to contact ESI Licensing at 800-344-7437 with any questions regarding the branch offices or non-branch locations.
TC133115(0423)1
To comply with Regulation Best Interest and Department of Labor regulations, firm policy requires 401(k) rollovers to be identified as the result of either Education or Recommendation conversations. Please reference prior training on the topic of Education vs. Recommendation available through the Agent Portal: DOL 2.0: Education and Recommendations (mailchi.mp)
As a reminder, Recommendation conversations are not general advice, and involve the Registered Representative making calls to action based on a specific customer’s individualized needs, such as: “I think you should….” or “I recommend you rollover this 401(k) into an IRA”.
In contrast, Education conversations are typically more general and informational in nature. For example, rollover education will discuss the pros and cons associated with moving money to an IRA, versus leaving it in the 401(k) plan or taking a distribution. After providing that information in a neutral fashion, the client ultimately decides whether they’d like to rollover their 401(k) into an IRA without a recommendation. If a rollover occurs, the Registered Representative may then assist in identifying which type of investment product(s) should be used for the IRA, at which time the Registered Representative can make product recommendations.
New Annuities
All new Annuity purchases require the Annuity Purchase & Exchange Disclosure (“APED”) form to be completed. The APED was recently enhanced for ease of use on page 5, Section V (Cost Considerations) to assist you with clearly documenting whether the Education or Recommendation process was utilized when the funding involves a 401(k).
If Education was used, you answer “no” to the second question and then proceed to the next section. However, if Recommendation was used then you would answer “yes” and complete the remainder of Section V, including a cost comparison between the 401(k) and Annuity.
Existing Annuities
The APED is only used for new Annuity purchases, while the Source of Funds form is used for additional investments. In addition to the Source of Funds form, you will need to provide either the Defined Contribution Rollover Education or Defined Contribution Rollover Recommendation if a 401(k) is part of the funding. The selection between the two versions, Education or Recommendation, will be based on your conversation with the client.
404(A)(5) – Participant Fee Disclosure
If Recommendation was utilized you will need to complete a cost comparison using the 404(a)(5) – also known as the Participant Fee Disclosure, which is available from the 401(k) provider. If the client is not able to provide you with a copy, then you are able to reference proxy information available through the Agent Portal: 401(k) Plan Data (nationallife.com)
Keep in mind that whenever Recommendation is utilized, the Client Relationship Summary needs to be provided to the client, even on additional investments.
84-24 Qualified Annuity Disclosure
The 84-24 Qualified Annuity Disclosure is required with any qualified Annuity regardless of the funding source. It should be completed at the time of a new purchase, or if you’re recommending adding to an existing annuity and it is not already on file, is no longer effective (the form becomes stale 3 years since last acknowledged by the client), or information on the last disclosure on file has changed (e.g., your ESI payout rate changed).
When the 84-24 requirement first went live and ESI noticed that the form was not on file for existing annuities, we sent reminder emails as a courtesy, however this has been discontinued effective 04/01/2023. Registered Representatives continue to be responsible for ensuring the form is completed and on file when applicable.
Questions
If you have any questions, please contact your supervisor or ESI Direct Business Suitability at 800-344-7437.
TC132996(0423)1
Updates to Documenting Client Reviews
Investment Adviser Representatives (“IARs”) must meet with their advisory clients on at least an annual basis to ensure the recommended portfolio(s) and/or program(s) continue to meet their investment objectives.
Currently, client reviews are recorded by uploading either EFA’s Documentation of Annual Client Contact (“ACC”) form or some other similar documentation to the client’s Docupace folder. Effective immediately, reviews for ESI Illuminations clients can be documented and tracked within the Envestnet platform.
ESI Illuminations Programs
You now have the ability to record and track reviews for clients with accounts on the ESI Illuminations platform (i.e. Third-Party Strategist, SMAs, UMAs, Flagship Select, ESI Directions, and ESI Compass) in the Envestnet system. By entering the review into the system, you are attesting that you met with the client to determine 1) whether there have been any changes to their financial situation or investment objectives, and 2) whether they wish to impose any reasonable restrictions on the management of their account (or reasonably modify any pre-existing restrictions).
To document your meeting in Envestnet:
(Click here for an illustrated guide with screen prints.)
Tips for documenting reviews in Envestnet:
Supervisors, Office Managers and/or Administrative Assistants can request access to upload/view reviews in Envestnet by sending a note to ESICompliance@nationallife.com.
Solicitor and other Non-Illuminations Programs
Effective, April 1, 2023, recording documentation of client reviews may be completed entirely in Docupace. The documentation form is an attestation (same as the one in Envestnet) which you can complete in Docupace, via Starting Point. Check the appropriate box (stating you met with the client, or that you weren’t able to), indicate the date of the contact, type your name on the document, and submit. Once complete, save the document to the client’s General folder. Please do not image the document to non-advisory account folders.
Previously completed documentation[1] may still be uploaded to the client’s General folder in Docupace. However, going forward, the previous version of the documentation form will no longer be available for use.
In the event a client is unresponsive to attempts to contact them, send the client the Annual Review Client Letter and the Annual Client Contact Questionnaire to satisfy the contact requirement. Manually upload the letter and questionnaire – along with evidence of sending – to the client’s General folder in Docupace. As a reminder, if you utilize this letter, it must go through the Advertising Guidance Team for review and approval prior to use and must sent to your OSJ and kept in the outgoing correspondence file.
Reminders when using Docupace to store documentation:
Quarterly Advisory Client Lists
In an effort to assist with ensuring that documentation of client reviews is maintained in accordance with ESI’s policies and procedures, the home office distributes lists of advisory clients to each OSJ on a quarterly basis (not specifically on a calendar quarter). These lists reflect the client’s last review on record in Docupace.
Over the years, the process for producing these lists has been refined and improved to better ensure their accuracy. However, the fact remains that the quality of the data in the lists depends primarily on the quality of the data entered. To help ensure accurate information, please ensure:
Please note, if an account is new (no advisory fee paid yet), if there has been no advisory fee paid in the last 2 quarters, the account has a zero balance at the vendor, or a reversal of advisory fees has happened in the last six months, the account will not show up on the report.
Annual Review Reminders
Advisors are required to meet with their clients on, at least, an annual basis. “Annually” is defined as meaning within 365 days of the last review, versus simply within a calendar year. The following are examples of annual review timelines:
As noted previously, if a client is unresponsive to requests for a review, send them the Firm’s template letter and questionnaire (i.e. Annual Review Client Letter and Annual Client Contact Questionnaire), which will satisfy the contact requirement. If sent, both the letter and questionnaire, along with evidence mailing, must be manually uploaded to the client’s General folder into Docupace.
[1] IARs who utilize a client relationship management tool, such as Redtail or SmartOffice, can print/PDF meeting notes and scan them into Docupace, in lieu of using ESI’s Documentation of Annual Client Contact form.
Questions
Please see the attached document (which is also available on the Agent Portal under ESI Compliance) for guidance on documenting client reviews in Envestnet and Docupace, how to read the quarterly report, and Frequently Asked Questions.
If you have any questions about this requirement, please contact your supervisor or Tonya Carrien at 802-229-3121.
TC132840(0423)1
The Florida Department of Financial Services requires specific obligations to be met when conducting annuity business in their state. While the requirements are not new, this notice should serve as a reminder and show how ESI has solutions to help ensure compliance.
These obligations outline that the agent, must have reasonable grounds for believing that the recommendation is suitable for the consumer, based on the consumer’s suitability information. To assist with this requirement, they offer an Annuity Suitability Questionnaire form DFS-H1-1980. This form is required for any annuity business occurring in Florida regardless of the client’s age. ESI has added this document to our forms library. Docupace StartingPoint will automatically add it to Florida annuity form kits as a required form effective 04/07/2023.
Additionally, Florida requires the Disclosure and Comparison of Annuity Contracts form DFS-H1-1981 to inform the client of material facts when a replacement transaction is occurring. ESI has also added this form to our library; however, it will remain as an optional form that can manually be added to the forms kit when necessary.
It is worth noting that these forms may also be needed for subsequent deposits into existing Florida contracts. Rep’s assembling paperwork via Merrill will continue to be responsible for adding them when necessary.
Please call Direct Business Suitability at 800-344-7437 with questions.
TC132706(0423)1
SEC Marketing Rule Update
As announced in Field Notice 2022-31, compliance with the Securities Exchange Commission’s (“SEC”) new Marketing Rule (“Rule”) was effective on November 4, 2022. Please refer to Field Notices 2022-21 and 2022-31 for background and changes relating to the Rule. The purpose of this Notice is to address some questions generated by the changes.
FREQUENTLY ASKED QUESTIONS
Q1. What constitutes an advertisement?
An advertisement is any direct or indirect communication to more than one person, or to even a single person if the communication includes hypothetical performance, that offers the investment adviser’s investment advisory services with regard to securities to prospective clients or offers new investment advisory services with regard to securities to current clients. The definition also includes any endorsement or testimonial involving direct or indirect compensation.
Q2. What kinds of communications are not considered advertisements?
Under the Marketing Rule, the following types of communication are excluded from the definition of an advertisement:
So, communications to one customer are generally excluded from the definition of an advertisement, with the exception of communications that include hypothetical performance. Communications that include hypothetical performance are subject to the requirements of the Rule, even if they’re only provided to one customer.
Q3. What constitutes hypothetical performance?
Hypothetical performance is defined as “performance results that were not actually achieved by any portfolio of the investment adviser.” This includes:
Among other scenarios, the definition applies to any software or analysis tool that aggregates historical data to create or project performance for two or more securities to reflect performance of a hypothetical portfolio. For example:
An advisor uses an analysis tool to show their client how their portfolio would have performed if they’d held Google, General Motors, and Pfizer over the past three years, when they didn’t, in fact, hold any of those securities. This is hypothetical performance, under the rule.
Hypothetical performance does not include:
An example of this exclusion includes an analysis tool which requires that the client or prospective client provide the information used to generate the tool’s output. The tool must still provide the disclosures required in (a) – (d) above.
Q4. What planning tools can I use with clients?
MoneyGuide Pro and eMoney have amended their tools to comply with the requirements of the Rule and may continue to be used with investors.
Those features of Morningstar Advisor Workstation which reflect solely historical performance may be used with clients. For example, advisors may use Morningstar’s snapshot report for a specific security, as that report would not constitute hypothetical performance under the Rule. However, creating a report which blends historical returns of multiple securities that don’t actually constitute an existing portfolio currently held by the investor or offered by the Firm to create a “what if” scenario, would fall under the definition of hypothetical performance above, and is not permitted.
Q5. What about asking individual clients for referrals?
The Marketing Rule creates two prongs to the definition of “advertisement”. The first prong specifically excludes most one-on-one communications and extemporaneous, live, oral communications. The second prong covers compensated testimonials and endorsements, which could include oral communications and one-on-one communications.
As such, to the extent that the client’s referral is an oral, one-on-one communication with the other individual, and you don’t provide them with cash or non-cash compensation for the referral, then this activity falls outside the definition of “advertisement” and is not subject to the requirements of the Rule.
Q6. My client referred me to their neighbor. Can I give them a gift card to say “thank you”?
If you offer them the gift card to encourage them to make referrals, then the answer is “No,” unless you enter into a Promoter agreement to ensure compliance with the advertising rule. As mentioned in Q1, providing compensation – directly or indirectly – for a referral constitutes advertising, and is subject to the Rule.
However, this doesn’t preclude you from providing gifts or entertainment to your clients, generally, in accordance with normal policies and procedures.
Q7. I have an arrangement with an individual who sends me fixed life business, and I refer individuals to them for long-term care coverage. Do I need a Promoter Agreement?
If you’re an IAR, yes. Because it is very likely that someone recommending you for life insurance sales will also recommend you for securities business, any business-related referral arrangement will require the completion of the Promoter Agreement.
Questions regarding the Marketing Rule or this notice may be directed to Tom Longfellow at tlongfellow@nationallife.com.
TC132556(0323)1
In accordance with the annual update requirement of DOL Rule 408(b)(2), ESI has posted its updated revenue sharing arrangement disclosure document to its public website (www.equity-services.com). Clients who sponsor ERISA-governed accounts will receive a notification in the mail announcing the update and how to obtain additional information.
Client Mailing
A notification of the update will be mailed to all sponsors of ERISA-governed accounts (click here for sample letter). This letter serves solely as a notification that there’s been an update to the Firm’s disclosures and where the information can be found. There is no action necessary on the part of the recipients or Registered Representatives.
Clients with questions are directed to their Representative.
Questions
If you have any questions regarding this notice, please contact ESI Compliance at 800-344-7437.
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Regulatory Element CE
Effective January 1, 2023, all registered persons are required to complete FINRA’s Regulatory Element CE by December 31st each year. This represents a change to FINRA’s previous approach to CE as it replaces the previous 3-year anniversary requirement with an annual one. Note that, to ensure compliance with the rule, member firms may set different deadlines based on their business requirements. Accordingly, ESI will require that RRs complete their Regulatory CE by November 30th, each year.
Under the new program, participants will receive content that is specifically tailored to each representative or principal registration category they hold.
Newly-registered representatives will be subject to the annual CE requirement starting with the next calendar year after the year in which they pass their initial registration exam. For example:
ESI will place individuals who fail to complete their Regulatory Element by the November 30th deadline on “CE Inactive” status with the Firm. “CE Inactive” means you will not be able to submit new business and commissions will be suspended until you fulfill your CE requirement. If you remain CE Inactive for 30 calendar days, your ESI registration may be terminated.
Firm Element CE
Also effective with the Rule, all registered persons are subject to the annual Firm Element CE requirement. This is a change in that, under the previous Rule, Firm Element CE was, effectively, limited to affiliated persons who were client-facing and their supervisors. The new Rule expands the requirement to all registered persons, irrespective of their role. This change will generally impact home office employees who may have previously been exempted from the requirement based on their role and responsibilities.
ESI’s Firm Element CE program will continue to follow its current, historical timeline (i.e. due February 28th, annually). However, the population of individuals subject to Firm Element CE will be expanded to comply with the new Rule.
Resources
You can track your personal CE status from your FinPro account. If you haven’t already registered with FinPro, you can do so https://finpro.finra.org/registerUser/. Existing FinPro users can log in at https://finpro.finra.org.
Additional FINRA CE resources can be found at:
Continuing Education (CE) | FINRA.org
Securities Industry CE Transformation | FINRA.org
Questions
Questions regarding this notice may be directed to ESI Licensing at esi_licensing@nationallife.com or Misty Dodson at mdodson@nationallife.com.
TC131573(0223)1
ESI 2023 Kick Off Call
Please join ESI’s Executive Leadership Team for our 2023 Kick Off call! We’ll take a quick look back at the activities and results of Q4 and then discuss what’s ahead for 2023.
If you have any questions for ESI’s Leadership Team, let us know! Submit your questions to ESIBusinessDevelopment@nationallife.com by February 8th, and we’ll answer them during the call.
Presented by ESI
Monday, February 13th at 1:00pm ET
Click Here to Register.
Secure Act 2.0 Update
The SECURE ACT went into effect January 1, 2020, fundamentally changing the tax and distribution rules for beneficiaries of IRAs and other qualified retirement accounts as we knew them. In 2022, SECURE ACT 2.0 was signed into law adding additional changes as we well as additional complexity. Join ESI and Strategic Partner, Prudential Financial, for a discussion of these updates and their impact.
Presented by ESI and Prudential Financial
Tuesday, February 14th at 3:30pm ET
Click Here to Register.
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Join us for important updates resulting from the Secure Act 2.0. changes to the 10-year rule, who will be impacted by the rules, and the potentially substantial tax implications for those beneficiaries.
SECURE ACT 2.0: What You Need to Know!
Tuesday, February 14, 2023
3:30 p.m. ET
Click here to register.
IRS REG.105954-20 The SECURE ACT went into effect January 1, 2020, fundamentally changing the tax and distribution rules for beneficiaries of IRAs and other qualified retirement accounts as we knew them. The IRS recently caught everyone by surprise and flipped the understanding of the 10-year rule on its head when it applied the “At Least as Rapidly” doctrine to certain beneficiaries of qualified retirement accounts which will create new and potentially expensive tax pitfalls for some taxpayers. This presentation will discuss the changes to the 10-year rule, who will be impacted by the rules, and the potentially substantial tax implications for those beneficiaries. Having an understanding of the new rules will be critical in preventing potentially expensive mistakes in 2023 and beyond.
SECURE Act 2.0: On December 29, 2022, SECURE Act 2.0 was signed into law, building on The SECURE Act of 2019. The legislation should help strengthen the retirement system and make it easier to save and invest for retirement. While 2.0 brings some welcome changes, as with any legislation, 2.0 adds some additional complexities that will need to be expertly navigated to take advantage of many of the new rules, as well as avoid potential tax missteps.
TC131173(0123)1