Regulatory Compliance & Ethical Practices Flashcards
7 cards from real RAA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Regulatory Compliance & Ethical Practices flashcards as text
Which of the following actions by an annuity producer constitutes 'rebating,' which is prohibited in most states?
Answer: Offering a client a portion of the advisor's commission as an incentive to purchase
Rebating occurs when a producer gives or offers to give a client anything of value — including a share of the commission — as an inducement to purchase an insurance or annuity contract.
The SEC's Regulation Best Interest (Reg BI) applies to annuity recommendations when:
Answer: A variable annuity is recommended by a broker-dealer to a retail customer
Reg BI applies to broker-dealers recommending securities — which includes variable annuities — to retail customers, requiring the recommendation to be in the customer's best interest.
A client's annuity application is flagged under an AML Customer Identification Program (CIP). What is the advisor's correct response?
Answer: Follow the firm's AML procedures and do NOT tip off the client that a SAR may be filed
AML regulations strictly prohibit 'tipping off' — advisors must follow internal AML procedures and may file a SAR, but they must never alert the client that suspicious activity has been reported.
Under the NAIC's Best Interest Standard for annuity transactions, which of the following best describes the 'care' obligation?
Answer: Acting with reasonable diligence and care to understand the annuity and the client's profile before recommending it
The 'care' obligation under the NAIC Best Interest Standard requires producers to exercise reasonable diligence, care, and skill in understanding the product, the client's financial situation, and the suitability of the recommendation.
An advisor recommends a fixed indexed annuity to an 82-year-old client with significant liquid assets. Which suitability factor is MOST critical to document?
Answer: The client's liquidity needs relative to the annuity's surrender period
For elderly clients, documenting that the client has sufficient liquid assets outside the annuity to meet ongoing needs is the most critical suitability factor given long surrender periods.
Which regulatory body enforces state insurance laws governing annuity sales, licensing, and market conduct?
Answer: The state's Department of Insurance
State Departments of Insurance are the primary regulators of fixed and fixed indexed annuity sales, licensing requirements, and market conduct for insurance producers.
An advisor uses a product illustration showing a fixed indexed annuity earning 8% annually for the last 20 years to close a sale. Why is this a compliance concern?
Answer: Cherry-picking historically favorable periods to imply future performance is misleading and violates fair and balanced disclosure requirements
Selecting only favorable historical periods to imply future performance misleads clients and violates state insurance laws and NAIC illustration model regulations requiring balanced, non-misleading disclosures.