Broker-Dealer Networking Arrangement Failed to Protect Unregistered Insurance Company
The state of Connecticut (together with other states as part of multi-state action) sanctioned a large insurance company for exerting too much control over securities agents designated to sell securities products pursuant to a networking arrangement. The insurance company and a broker-dealer entered into the networking arrangement to facilitate the sales of securities products through insurance branch locations. The insurance company received over 80% of all revenue. According to the Connecticut Department of Banking, although the broker-dealer should have exercised exclusive control over the securities reps, the life insurance company determined compensation, product offerings, and the clearing broker and conducted all training and reviewed marketing materials. The state alleges that the insurance company’s conduct required registration in Connecticut as a broker-dealer and investment adviser.