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Financial Services Advice Was Incidental To Sale Of Policy, And Therefore Not Governed By Investment Advisers Act

Blogs, Life Insurance

Are an insurer’s agents acting as investment advisors and therefore governed by the Investment Advisers Act of 1940 (IAA)? Not in Thomas v. Metropolitan Life Ins. Co., 631 F.3d 1153 (10th Cir. 2011), a 2011 opinion in which the Tenth Circuit Court of Appeals affirmed a decision of the U.S. District Court for the Western District of Oklahoma.

In Thomas v. Metropolitan Life Ins. Co., the plaintiff had filed a would-be class action lawsuit, proposing to represent class members who purchased life insurance policies from the insurer, Metropolitan Life Insurance Company. The plaintiff claimed that the insurer’s agent – who described himself as a financial services representative – was an investment advisor, and as such was governed by the IAA.

The IAA “excludes a broker-dealer who provides advice that is . . . given in connection with . . . the broker-dealer’s conduct as a broker or dealer, so long as he does not receive compensation that is (1) received specifically in exchange for the investment advice, as opposed to for the sale of the product, and (2) distinct from a commission or analogous transaction-based form of compensation for the sale of a product.”

The Court found that the agent’s actions fell within the scope of the exception set forth in the IAA, due to the fact that any advice given by the representative was incidental and was provided in connection to the sale, and that no compensation was given for such advice, since the compensation was provided only in relation to the sale of the product.