FINRA Mulling New Guidance on Life Settlement Compensation Stranger originated life insurance policies also eyed by authority

The Financial Industry Regulatory Authority Inc. might issue guidance in coming weeks regarding fees firms can charge for life settlement transactions, a Finra executive said today in Boston at the agency’s annual meeting.

“We are looking to provide more guidance on life settlements as it relates to compensation,” said Larry Kosciulek, director of investment company regulations for Finra. “We are thinking about it.”

FINRA of Washington and New York has a guideline of 5% for markup and commissions for life settlement transactions, he said.

The guideline is based on the market value of the policy. The current guideline does not mean that something higher is inappropriate, Mr. Kosciulek said. “We consider the effort that was involved in the transaction including how many months of work it involved,” he said.

Life settlements have come under scrutiny by regulators after a secondary market emerged for the buying and selling of life insurance policies prior to an individual’s death.
The most problematic of these transactions are the so-called stranger originated life insurance policies, where the original intent is to settle the policy with a third party prior to the individual’s death.
The business of buying and selling Stoli plans is largely unregulated, said J. Lee Covington, senior vice president of Reston, Va.-based NAVA Inc.
Only 13 states have passed legislation that limits or prohibits the buying and selling of these plans. Another nine states have bills drafted or pending, he said.
“What I see going forward in terms of legislation is that you are likely going to have a different law in every state,” Mr. Covington said.

Finra had 500 participants at the three-day conference.