Financial Product Sales: Actions Needed to Protect Military Members Page: 17 of 28
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Securities Regulators Also
Hampered by Lack of
cooperatively with DOD to develop suitability or appropriateness
standards that would apply to the sale of financial products to military
members. The bills being considered in the U.S. Senate include provisions
to have these parties work together to develop such standards.14 Such
standards could ensure that companies offer only products that address
actual service member needs for insurance and that take into account
service members' itinerant lifestyles and income levels. Having such
standards could also provide protection for service members that are
located in overseas installations not directly overseen by state regulators.
Similarly, the ability of SEC and NASD to identify problems involving sales
by broker-dealers to military members was also hampered by the lack of
complaints from DOD and for other reasons. For example, previous SEC
and NASD examinations of the largest marketer of contractual plans had
not identified any significant problems. However, staff from these
organizations told us that identifying the problems involving the sale of
this product was made more difficult because neither of the regulators had
previously received any complaints about the firm from service members.
The securities regulators' ability to detect problems was also hampered by
the lack of standardized data on the extent to which customers were
completing contractual plans. For example, SEC examiners had obtained
data from the largest broker-dealer that purported to show that the
persistency rate for the contractual plans-which represented the
proportion of plans that were still open-was over 80 percent for the
previous 3 years. However, after press reports appeared, NASD and SEC
examiners reviewing this firm's operations found that the firm maintained
various sets of data on its customers' activity. However, these various sets
did not always include all customers' information, which made regulators'
efforts to definitively determine the extent to which this firm's customers
were continuing to make payments and successfully completing their
plans more difficult. By further analyzing the data, the regulators
determined that, by excluding any customer whose account remained
open but had not made any payments in the last year, the actual extent to
which this broker-dealer's customers were successfully completing their
contractual plans was only 43 percent. As a result, the report we prepared
for this committee recommends that, if contractual plans continue to be
sold, SEC and NASD should consider ways (such as through revised
examination procedures or recordkeeping rules) to ensure that they obtain
14S. 418, Sec. 9, and H.R. 458, Sec. 108.
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United States. Government Accountability Office. Financial Product Sales: Actions Needed to Protect Military Members, text, November 17, 2005; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc292981/m1/17/: accessed May 25, 2019), University of North Texas Libraries, Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.