[House Report 108-725]
[From the U.S. Government Publishing Office]
108th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 108-725
======================================================================
MILITARY PERSONNEL FINANCIAL SERVICES PROTECTION ACT
_______
October 5, 2004.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Oxley, from the Committee on Financial Services, submitted the
following
R E P O R T
together with
SUPPLEMENTAL VIEWS
[To accompany H.R. 5011]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred the
bill (H.R. 5011) to prevent the sale of abusive insurance and
investment products to military personnel, having considered
the same, report favorably thereon with an amendment and
recommend that the bill as amended do pass.
CONTENTS
Page
Amendment........................................................ 2
Purpose and Summary.............................................. 7
Background and Need for Legislation.............................. 7
Hearings......................................................... 9
Committee Consideration.......................................... 9
Committee Votes.................................................. 9
Committee Oversight Findings..................................... 10
Performance Goals and Objectives................................. 10
New Budget Authority, Entitlement Authority, and Tax Expenditures 10
Committee Cost Estimate.......................................... 11
Congressional Budget Office Estimate............................. 11
Federal Mandates Statement....................................... 12
Advisory Committee Statement..................................... 12
Constitutional Authority Statement............................... 12
Applicability to Legislative Branch.............................. 12
Exchange of Committee Correspondence............................. 12
Section-by-Section Analysis of the Legislation................... 13
Changes in Existing Law Made by the Bill, as Reported............ 18
Supplemental Views............................................... 23
Amendment
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Military Personnel Financial Services
Protection Act''.
SEC. 2. CONGRESSIONAL FINDINGS.
The Congress finds the following:
(1) Our military personnel perform great sacrifices in
protecting our Nation in the War on Terror and promoting
democracy abroad.
(2) Our brave men and women in uniform deserve to be offered
first-rate financial products in order to provide for their
families and to save and invest for retirement.
(3) Our military personnel are being offered high-cost
securities and life insurance products by some financial
services companies engaging in abusive and misleading sales
practices.
(4) One securities product being offered to our service
members, the contractual plan, has largely disappeared from the
civilian market since the 1980's due to its excessive sales
charges. A 50 percent sales commission is assessed against the
first year of contributions, even though the average commission
on other securities products such as mutual funds is less than
6 percent on each sale.
(5) The excessive sales charges of the contractual plan makes
it susceptible to abusive and misleading sales practices.
(6) Certain life insurance products being offered to our
service members are being improperly marketed as investment
products. These products provide very low death benefits for
very high premiums that are front-loaded in the first few
years, making them completely inappropriate for most military
personnel.
(7) Regulation of these securities and life insurance
products and their sale on military bases has been clearly
inadequate and requires Congressional legislation to address.
SEC. 3. PROHIBITION ON FUTURE SALES OF PERIODIC PAYMENT PLANS.
(a) Amendment.--Section 27 of the Investment Company Act of 1940 (15
U.S.C. 80a-27) is amended by adding at the end the following new
subsection:
``(j) Termination of Sales.--
``(1) Termination.--Effective 30 days after the date of
enactment of the Military Personnel Financial Services
Protection Act, it shall be unlawful, subject to subsection
(i)--
``(A) for any registered investment company to issue
any periodic payment plan certificate; or
``(B) for such company, or any depositor of or
underwriter for any such company, or any other person,
to sell such a certificate.
``(2) No invalidation of existing certificates.--Paragraph
(1) shall not be construed to alter, invalidate, or otherwise
affect any rights or obligations, including rights of
redemption, under any periodic payment plan certificate issued
and sold before 30 days after such date of enactment.''.
(b) Technical Amendment.--Section 27(i)(2)(B) of such Act is amended
by striking ``section 26(e)'' each place it appears and inserting
``section 26(f)''.
SEC. 4. METHOD OF MAINTAINING BROKER/DEALER REGISTRATION, DISCIPLINARY,
AND OTHER DATA.
Subsection (i) of section 15A of the Securities Exchange Act of 1934
(15 U.S.C. 78o-3(i)) is amended to read as follows:
``(i) Obligation to Maintain Registration, Disciplinary and Other
Data.--
``(1) Maintenance of system to respond to inquiries.--A
registered securities association shall--
``(A) establish and maintain a system for collecting
and retaining registration information;
``(B) establish and maintain a toll-free telephone
listing, and a readily accessible electronic or other
process, to receive and promptly respond to inquiries
regarding--
``(i) registration information on its members
and their associated persons; and
``(ii) registration information on the
members and their associated persons of any
registered national securities exchange that
uses the system described in subparagraph (A)
for the registration of its members and their
associated persons; and
``(C) adopt rules governing the process for making
inquiries and the type, scope, and presentation of
information to be provided in response to such
inquiries in consultation with any registered national
securities exchange providing information pursuant to
subparagraph (B)(ii).
``(2) Recovery of costs.--Such an association may charge
persons making inquiries, other than individual investors,
reasonable fees for responses to such inquiries.
``(3) Process for disputed information.--Such an association
shall adopt rules establishing an administrative process for
disputing the accuracy of information provided in response to
inquiries under this subsection in consultation with any
registered national securities exchange providing information
pursuant to paragraph (1)(B)(ii).
``(4) Limitation of liability.--Such an association, or an
exchange reporting information to such an association, shall
not have any liability to any person for any actions taken or
omitted in good faith under this subsection.
``(5) Definition.--For purposes of this subsection, the term
`registration information' means the information reported in
connection with the registration or licensing of brokers and
dealers and their associated persons, including disciplinary
actions, regulatory, judicial, and arbitration proceedings, and
other information required by law, or exchange or association
rule, and the source and status of such information.''.
SEC. 5. FILING DEPOSITORIES FOR INVESTMENT ADVISERS.
(a) Amendment.--Section 204 of the Investment Advisers Act of 1940
(15 U.S.C. 80b-4) is amended--
(1) by striking ``Every investment'' and inserting the
following: ``(a) In General.--Every investment''; and
(2) by adding at the end the following:
``(b) Filing Depositories.--The Commission may, by rule, require an
investment adviser--
``(1) to file with the Commission any fee, application,
report, or notice required to be filed by this title or the
rules issued under this title through any entity designated by
the Commission for that purpose; and
``(2) to pay the reasonable costs associated with such filing
and the establishment and maintenance of the systems required
by subsection (c).
``(c) Access to Disciplinary and Other Information.--
``(1) Maintenance of system to respond to inquiries.--The
Commission shall require the entity designated by the
Commission under subsection (b)(1) to establish and maintain a
toll-free telephone listing, or a readily accessible electronic
or other process, to receive and promptly respond to inquiries
regarding registration information (including disciplinary
actions, regulatory, judicial, and arbitration proceedings, and
other information required by law or rule to be reported)
involving investment advisers and persons associated with
investment advisers.
``(2) Recovery of costs.--An entity designated by the
Commission under subsection (b)(1) may charge persons making
inquiries, other than individual investors, reasonable fees for
responses to inquiries made under paragraph (1).
``(3) Limitation on liability.--An entity designated by the
Commission under subsection (b)(1) shall not have any liability
to any person for any actions taken or omitted in good faith
under this subsection.''.
(b) Conforming Amendments.--
(1) Section 203A of the Investment Advisers Act of 1940 (15
U.S.C. 80b-3a) is amended--
(A) by striking subsection (d); and
(B) by redesignating subsection (e) as subsection
(d).
(2) Section 306 of the National Securities Markets
Improvement Act of 1996 (15 U.S.C. 80b-10, note; P.L. 104-290;
110 Stat. 3439) is repealed.
SEC. 6. STATE INSURANCE JURISDICTION ON MILITARY INSTALLATIONS.
(a) Clarification of Jurisdiction.--Any law, regulation, or order of
a State with respect to regulating the business of insurance shall
apply to insurance activities conducted on Federal land or facilities
in the United States and abroad, including military installations,
except to the extent that such law, regulation, or order--
(1) directly conflicts with any applicable Federal law,
regulation, or authorized directive; or
(2) would not apply if such activity were conducted on State
land.
(b) Primary State Jurisdiction.--To the extent that multiple State
laws would otherwise apply pursuant to subsection (a) to an insurance
activity of an individual or entity on Federal land or facilities, the
State having the primary duty to regulate such activity and whose laws
shall apply to such activity in the case of a conflict shall be--
(1) the State within which the Federal land or facility is
located; or
(2) if the Federal land or facility is located outside of the
United States, the State in which--
(A) in the case of an individual engaged in the
business of insurance, such individual has been issued
a resident license; or
(B) in the case of an entity engaged in the business
of insurance, such entity is domiciled.
SEC. 7. REQUIRED DEVELOPMENT OF MILITARY PERSONNEL PROTECTION STANDARDS
REGARDING INSURANCE SALES.
(a) State Standards.--The Congress intends that--
(1) the States collectively work with the Secretary of
Defense to ensure implementation of appropriate standards to
protect members of the Armed Forces from dishonest and
predatory insurance sales practices while on a
militaryinstallation of the United States (including
installations located outside of the United States); and
(2) each State identify its role in promoting the standards
described in paragraph (1) in a uniform manner within 12 months
after the date of the enactment of this Act.
(b) State Report.--It is the sense of the Congress that the NAIC
should, after consultation with the Secretary of Defense and within 12
months after the date of the enactment of this Act, conduct a study to
determine the extent to which the States have met the requirement of
subsection (a) and report such study to the Committee on Financial
Services of the House of Representatives and the Committee on Banking,
Housing, and Urban Affairs of the Senate.
SEC. 8. REQUIRED DISCLOSURES REGARDING LIFE INSURANCE.
(a) Requirement.--Except as provided in subsection (d), no insurer or
producer may sell or solicit, in person, any life insurance product to
any member of the Armed Forces on a military installation of the United
States unless a disclosure in accordance with this section is provided
to such member before the sale of such insurance.
(b) Disclosure.--A disclosure in accordance with this section is a
written disclosure that--
(1) states that subsidized life insurance may be available to
the member of the Armed Forces from the Federal Government;
(2) states that the United States Government has in no way
sanctioned, recommended, or encouraged the sale of the product
being offered;
(3) is made in plain and readily understandable language and
in a type font at least as large as the font used for the
majority of the policy; and
(4) with respect to a sale or solicitation on Federal land or
facilities located outside of the United States by an
individual or entity engaged in the business of insurance,
except to the extent otherwise specifically provided by the
laws of such State in reference to this Act, lists the address
and phone number where consumer complaints are received by the
State insurance commissioner for the State in which the
individual has been issued a resident license or the entity is
domiciled, as applicable.
(c) Enforcement.--If it is determined by a State or Federal agency,
or in a final court proceeding, that any individual or entity has
intentionally failed to provide a disclosure required by this section,
such individual or entity shall be prohibited from further engaging in
the business of insurance with respect to employees of the Federal
Government on Federal land, except--
(1) with respect to existing policies; and
(2) to the extent required by the Federal Government pursuant
to previous commitments.
(d) Exceptions.--
(1) Federal and state insurance activity.--This section shall
not apply to insurance activities--
(A) specifically contracted by or through the Federal
Government or any State government; or
(B) specifically exempted from the applicability of
this Act by a Federal or State law, regulation, or
order that specifically refers to this paragraph.
(2) Uniform state standards.--If a majority of the States
have adopted, in materially identical form, a standard setting
forth the disclosures required under this section that apply to
insurance solicitations and sales to military personnel on
military installations of the United States, after the
expiration of the 2-year period beginning on such majority
adoption, such standard shall apply in lieu of the requirements
of this section to all insurance solicitations and sales to
military personnel on military installations, with respect to
such States, to the extent that such standards do not directly
conflict with any applicable authorized Federal regulation or
directive.
(3) Materially identical form.--For purposes of this
subsection, standards adopted by more than one State shall be
considered to have materially identical form to the extent that
such standards require or prohibit identical conduct with
respect to the same activity, notwithstanding that the
standards may differ with respect to conduct required or
prohibited with respect to other activities.
SEC. 9. IMPROVING LIFE INSURANCE PRODUCT STANDARDS.
(a) In General.--It is the sense of the Congress that the NAIC
should, after consultation with the Secretary of Defense and within 12
months after the date of the enactment of this Act, conduct a study and
submit a report to the Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing, and Urban
Affairs of the Senate on ways of improving the quality of and sale of
life insurance products sold by insurers and producers on military
installations of the United States, which may include limiting sales
authority to companies and producers that are certified as meeting
appropriate best practices procedures or creating standards for
products specifically designed for members of the Armed Forces
regardless of the sales location.
(b) Conditional GAO Report.--If the NAIC does not submit the report
to the committees as described in subsection (a), the Comptroller
General of the United States shall study any proposals that have been
made to improve the quality and sale of life insurance products sold by
insurers and producers on military installations of the United States
and report to the Committee on Financial Services of the House of
Representatives and the Committee on Banking, Housing, and Urban
Affairs of the Senate on such proposals within 6 months after the
expiration of the period referred to in subsection (a).
SEC. 10. REQUIRED REPORTING OF DISCIPLINED INSURANCE AGENTS.
(a) Reporting by Insurers.--After the expiration of the 2-year period
beginning on the date of the enactment of this Act, no insurer may
enter into or renew a contractual relationship with a producer that
solicits or sells life insurance on military installations of the
United States unless the insurer has implemented a system to report, to
the State insurance commissioner of the State of the domicile of the
insurer and the State of residence of the insurance producer,
disciplinary actions taken against the producer with respect to the
producer's sales or solicitation of insurance on a military
installation of the United States, as follows:
(1) Any disciplinary action taken by any government entity
that the insurer knows has been taken.
(2) Any significant disciplinary action taken by the insurer.
(b) Reporting by States.--It is the sense of the Congress that within
2 years after the date of the enactment of this Act, the States should
collectively implement a system to--
(1) receive reports of disciplinary actions taken against
insurance producers by insurers or government entities with
respect to the producers' sale or solicitation of insurance on
a military installation; and
(2) disseminate such information to all other States and to
the Secretary of Defense.
SEC. 11. REGISTRY OF BARRED INSURANCE AGENTS AND FINANCIAL ADVISORS.
(a) Establishment.--The Secretary of Defense shall establish a
registry of insurance agents and financial advisors that have been
barred or banned from doing business on any or all military
installations of the United States. The registry shall be operational
not later than the expiration of the 90-day period beginning on the
date of the enactment of this Act.
(b) Updating.--The Secretary shall update and maintain such registry
in a manner that ensures the registry is at all times current and
accessible.
(c) Registry.--The registry established under this section shall--
(1) include the name, address, and other identifying
information of each insurance agent or financial advisor that,
at such time, is barred, banned, or otherwise limited in any
manner that is not generally applicable to all such agents or
advisors with respect to doing business on any or all military
installations of the United States; and
(2) be easily accessible and searchable by--
(A) appropriate personnel for purposes of enforcing
any such bar, ban, or limitation; and
(B) appropriate Federal and State agencies
responsible for financial and insurance regulation.
(d) Notice to Financial Regulators.--The Secretary shall promptly
notify the appropriate Federal and State agencies responsible for
financial and insurance regulation, upon the inclusion or removal of an
insurance agent or financial advisor in or from the registry
established under this section, of such inclusion or removal,
respectively.
(e) Appeals.--The Secretary shall provide for any such agent or
advisor to appeal to the Secretary their erroneous inclusion in such
registry and for a prompt determination of any such appeal.
(f) Regulations.--
(1) In general.--The Secretary shall issue regulations in
accordance with this subsection providing for--
(A) the establishment and maintenance of the registry
under this section; and
(B) the establishment and operation of the procedure
for appeals under subsection (e).
(2) Proposed regulations and submission to congress.--Not
later than the expiration of the 30-day period beginning on the
date of the enactment of this Act, the Secretary shall prepare
and submit to the appropriate Committees a copy of the
regulations under this subsection that are proposed to be
published for comment. The Secretary may not publish such
regulations for comment in the Federal Register until the
expiration of the 15-day period beginning upon such submission
to the appropriate Committees.
(3) Final regulations.--Not later than 60 days after the date
of the enactment of this Act, the Secretary shall submit to the
appropriate Committees a copy of the regulations under this
section to be published as final, which shall become effective
upon the expiration of the 30-day period beginning upon
submission to the appropriate Committees.
(g) Definitions.--For purposes of this section:
(1) Appropriate committees.--The term ``appropriate
Committees'' means--
(A) the Committee on Financial Services and the
Committee on Armed Services of the House of
Representatives; and
(B) the Committee on Banking, Housing, and Urban
Affairs and the Committee on Armed Services of the
Senate.
(2) Military installation.--The term ``military installation
of the United States'' includes installations located outside
of the United States.
(3) Secretary.--The term ``Secretary'' means the Secretary of
Defense.
SEC. 12. SENSE OF CONGRESS.
It is the sense of the Congress that the Federal and State agencies
responsible for insurance and securities regulation should provide
advice to the appropriate Federal entities to consider--
(1) significantly increasing the life insurance coverage made
available through the Federal Government to members of the
Armed Forces;
(2) implementing appropriate procedures to encourage members
of the Armed Forces to improve their financial literacy and
obtain objective financial counseling before purchasing
additional life insurance coverage or investments beyond those
provided by the Federal Government; and
(3) improving the benefits and matching contributions
provided under the Thrift Savings Plan to members of the Armed
Forces.
SEC. 13. DEFINITIONS.
For purposes of this Act, the following definitions shall apply:
(1) Entity.--The term ``entity'' includes insurers.
(2) Individual.--The term ``individual'' includes insurance
agents and producers.
(3) NAIC.--The term ``NAIC'' means the National Association
of Insurance Commissioners.
(4) State insurance commissioner.--The term ``State insurance
commissioner'' means, with respect to a State, the officer,
agency, or other entity of the State that has primary
regulatory authority over the business of insurance and over
any person engaged in the business of insurance, to the extent
of such business activities, in such State.
Purpose and Summary
H.R. 5011, the Military Personnel Financial Services
Protection Act, will protect military services members from the
sale of questionable financial products, curb abusive sales
practices on military installations, and ensure regulatory
oversight of financial services sales on military
installations. Specifically, H.R. 5011 bans the sale of
contractual plans, requires written disclosures in conjunction
with certain on-installation sales or solicitations, encourages
the development of improved products for military personnel,
and improves regulatory oversight by coordinating and
encouraging contact among insurance companies, Federal and
State regulators, and the Secretary of Defense.
To further protect military personnel, a registry of barred
and banned agents will be established and maintained by the
Secretary of Defense, and the registry information is to be
made readily available to the appropriate Federal and State
regulators. The Secretary of Defense is directed to notify the
appropriate regulatory authorities when an individual is added
to or removed from the registry.
Background and Need for Legislation
There is an extensive history of abusive and misleading
marketing and sales of financial services products on military
installations. Problems have included abusive and coercive
sales tactics, expensive and outdated products, and a lack of
uniform regulatory oversight for on-installation sales.
A Pentagon-commissioned study by General Thomas Cuthbert
and a separate Navy Judge Advocate General Corps report by Lt.
Wayne Hildreth documented the problem of abusive sales
practices of life insurance agents on military installations
both domestically and abroad (Final Report, Insurance
Solicitation on Department of Defense Installations, May 15,
2000; Litigation Report Investigation of NCOA Standard
Procedures For Selling Insurance, November 19, 1997). These
reports detailed improper solicitation on installation, using
fraternal military organizations to sell insurance products, a
lack of uniform oversight or regulation of insurance sales on
installation, and routine and systemic violations of Department
of Defense rules. These reports were followed by a series of
articles in the New York Times in the summer of 2004 that
alleged abusive sales practices on several military
installations throughout the country and overseas.
A 1986 Department of Defense Directive limits personal
commercial solicitations to licensed and approved entities with
specific appointments (DoD Directive 1344.7, Sect. 6.1). The
Directive prohibits, among other practices, solicitation of
recruits, trainees, and transient personnel in a ``mass'' or
``captive'' audience, using misleading advertising and sales
literature, and giving the appearance that the Department of
Defense endorses any particular company (DoD Directive 1344.7,
Sect. 6.4). Despite these prohibitions, according to the New
York Times, ``agents have made misleading pitches to `captive'
audiences * * * posed as counselors on veterans benefits and
independent financial advisers [and] solicited soldiers in
their barracks or while they were on duty, [which are all]
violations of Defense Department regulations.'' (``Basic
Training Doesn't Guard Against Insurance Pitch to G.I.'s'',
Diana Henriques, New York Times, July 20, 2004.)
Witnesses at a September 9, 2004 Capital Markets
subcommittee hearing on military personnel finances criticized
the sales practices documented by the New York Times articles.
Mr. David F. Woods, CEO of the National Association of
Insurance and Financial Advisors, testified that, ``We condemn
* * * deceptive, and unethical sales practices and have
consistently worked to eliminate them from sales on and off
base.'' (Hearing entitled ``G.I. Finances: Protecting Those Who
Protect Us'' before the House Subcommittee on Capital Markets,
September 9, 2004, written testimony of David F. Woods, p. 3).
In addition to criticizing the sales practices, witnesses
before the Subcommittee discussed the lack of regulatory
oversight for on-installation sales. As another witness
testified, ``We are convinced that the reason these issues
continue to come up is because of the lack of clarity over who
has the authority to oversee such sales and the absence of
clear procedures to ensure the highest standards for dealing
with men and women in uniform.'' (Hearing, written testimony of
Hon. Frank Keating, President and CEO, American Council of Life
Insurers, p. 4.)
In addition to improper and unethical sales practices,
witnesses at the Subcommittee hearing criticized the securities
and life insurance products being sold, suggesting that better
investments were available for any individual and the products
were particularly unsuitable for most members of the armed
services. For example, Ms. Elizabeth Jetton, President of the
Financial Planning Association, testified that the American
Amicable Insurance Company's sales tactic of pitching insurance
as a retirement vehicle was ``misguided and misleading'' and
that ``any disinterested third party would have a very
difficult time justifying [such] insurance as a rational
retirement investment for the typical serviceman.'' (Hearing,
written testimony of Ms. Elisabeth W. Jetton, CFP, on behalf of
the Financial Planning Association, p. 5.) Mr. Mercer Bullard,
President and Founder of Fund Democracy, testified that, ``it
is particularly offensive that insurance agents peddle
overpriced, unsuitable products to the men and women who daily
put their lives on the line for America's defense * * *''.
(Hearing, written testimony of Mr. Mercer E. Bullard, President
of Fund Democracy, Inc. and Assistant Professor of Law,
University of Mississippi School of Law, p. 3.)
The Subcommittee investigation in preparation for the
hearing revealed that one financial services company was
targeting military personnel with the sale of contractual plans
(or periodic payment plans), an obscure financial product
invested in mutual funds. These plans largely disappeared from
the civilian market over two decades ago due to their excessive
sales charges and the emergence of low-cost competitive
products. In fact, in a mutual fund market that has over 7
trillion dollars invested, these plans account for only
approximately 11 billion dollars of which 90 percent are held
by military personnel. The plans have first-year sales charges
of 50 percent, an astronomical figure considering that the
average sales charges on mutual fund sales rarely exceed 6.5
percent, and it is uncommon for any investor in the civilian
market to pay more than 6 percent in the first year. (Hearing,
Jetton, p. 7.)
Hearings
The Subcommittee on Capital Markets, Insurance and
Government Sponsored Entities held a hearing on financial
practices and sales to the military entitled ``G.I. Finances:
Protecting Those Who Protect Us'' on September 9, 2004. The
Subcommittee received testimony from the following witnesses:
Specialist Brandon Conger, United States Army; Ms. Elizabeth W.
Jetton, President, Financial Planning Association; Mr. Mercer
Bullard, Founder and Chief Executive Officer, Fund Democracy,
Inc.; Mr. Lamar C. Smith, Chairman and Chief Executive Officer,
First Command Financial Planning, Inc.; Mr. Joe W. Dunlap,
Executive Vice President, American Amicable Life Insurance
Company of Texas; Mr. David Woods, Chief Executive Officer,
National Association of Insurance and Financial Agents; Hon.
Frank Keating, President and Chief Executive Officer, American
Council of Life Insurers.
Committee Consideration
The Committee on Financial Services met in open session on
September 29, 2004 and ordered H.R. 5011, the Military
Personnel Financial Services Protection Act, favorably reported
to the House with an amendment by a record vote of 68 yeas and
no nays (Record vote no. 25).
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. A
motion by Mr. Oxley to report the bill to the House with a
favorable recommendation was agreed to by a record vote of 68
yeas and no nays (Record vote no. 25). The names of members
voting for and against follow.
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Oxley...................... X ........ ......... Mr. Frank (MA)... X ........ .........
Mr. Leach...................... X ........ ......... Mr. Kanjorski.... X ........ .........
Mr. Baker...................... X ........ ......... Ms. Waters....... X ........ .........
Mr. Bachus..................... X ........ ......... Mr. Sanders...... X ........ .........
Mr. Castle..................... X ........ ......... Mrs. Maloney..... X ........ .........
Mr. King....................... X ........ ......... Mr. Gutierrez.... X ........ .........
Mr. Royce...................... X ........ ......... Ms. Velazquez.... X ........ .........
Mr. Lucas (OK)................. ........ ........ ......... Mr. Watt......... X ........ .........
Mr. Ney........................ X ........ ......... Mr. Ackerman..... X ........ .........
Mrs. Kelly..................... X ........ ......... Ms. Hooley (OR).. X ........ .........
Mr. Paul....................... ........ ........ ......... Ms. Carson (IN).. X ........ .........
Mr. Gillmor.................... X ........ ......... Mr. Sherman...... X ........ .........
Mr. Ryun (KS).................. X ........ ......... Mr. Meeks (NY)... X ........ .........
Mr. LaTourette................. X ........ ......... Ms. Lee.......... X ........ .........
Mr. Manzullo................... X ........ ......... Mr. Inslee....... X ........ .........
Mr. Jones (NC)................. X ........ ......... Mr. Moore........ X
Mr. Ose........................ X ........ ......... Mr. Capuano...... X ........ .........
Mrs. Biggert................... X ........ ......... Mr. Ford......... X ........ .........
Mr. Green (WI)................. X ........ ......... Mr. Hinojosa..... X ........ .........
Mr. Toomey..................... X ........ ......... Mr. Lucas (KY)... X ........ .........
Mr. Shays...................... X ........ ......... Mr. Crowley...... X ........ .........
Mr. Shadegg.................... X ........ ......... Mr. Clay......... X ........ .........
Mr. Fossella................... X ........ ......... Mr. Israel....... X ........ .........
Mr. Gary G. Miller (CA)........ X ........ ......... Mr. Ross......... X ........ .........
Ms. Hart....................... X ........ ......... Mrs. McCarthy X ........ .........
(NY).
Mrs. Capito.................... X ........ ......... Mr. Baca......... X ........ .........
Mr. Tiberi..................... X ........ ......... Mr. Matheson..... X ........ .........
Mr. Kennedy (MN)............... X ........ ......... Mr. Lynch........ X ........ .........
Mr. Feeney..................... X ........ ......... Mr. Miller (NC).. X ........ .........
Mr. Hensarling................. X ........ ......... Mr. Emanuel...... X ........ .........
Mr. Garrett (NJ)............... X ........ ......... Mr. Scott (GA)... X ........ .........
Mr. Murphy..................... X ........ ......... Mr. Davis (AL)... X ........ .........
Ms. Ginny Brown-Waite (FL)..... X ........ ......... Mr. Bell......... X ........ .........
Mr. Barrett (SC)............... X ........ .........
Ms. Harris..................... X ........ .........
Mr. Renzi...................... X ........ .........
Mr. Gerlach.................... X ........ .........
----------------------------------------------------------------------------------------------------------------
* Mr. Sanders is an independent, but caucuses with the Democratic Caucus.
The following amendments were considered by the Committee:
An amendment in the nature of a substitute by Mr. Oxley,
no. 1, providing investors with access to information on
disciplinary actions regarding broker dealers, clarifying State
jurisdiction for sales on overseas military installations,
encouraging States to develop sales protection standards,
requiring additional disclosures, and requiring reporting of
agent disciplinary actions, was agreed to by a voice vote.
An amendment to the amendment in the nature of a substitute
by Mr. Ryun, no. 1a, requiring the Secretary of Defense to
establish and maintain a registry of all agents and financial
advisors that have been barred or banned from doing business on
a military installation that is easily accessible and
searchable by the appropriate authorities, was agreed to by a
voice vote.
An amendment to the amendment offered by Mr. Ryun by Mr.
Israel, no. 1a1, requiring the Secretary of Defense to promptly
notify theappropriate Federal and State regulators upon the
inclusion or removal of an insurance agent or financial advisor from
the registry, was agreed to by a voice vote.
An amendment to the amendment in the nature of a substitute
by Mr. Kanjorski, no. 1b, amending the findings, was withdrawn.
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee held a hearing and made
findings that are reflected in this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee establishes the
following performance related goals and objectives for this
legislation:
The Secretary of Defense and State and Federal financial
regulators will use the authority granted by this legislation
to protect members of the military from abusive sales practices
on military installations. Further, the Secretary of Defense
will use the authority granted by this legislation to create
and maintain a registry of agents and broker/dealers who have
been banned or barred from selling financial services products
on military installations.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee finds that this
legislation would result in no new budget authority,
entitlement authority, or tax expenditures or revenues.
Committee Cost Estimate
The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974.
Congressional Budget Office Estimate
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, October 4, 2004.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 5011, the Military
Personnel Financial Services Protection Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Melissa E.
Zimmerman (for federal costs), and Sarah Puro (for the state
and local impact).
Sincerely,
Robert A. Sunshine
(For Douglas Holtz-Eakin, Director).
Enclosure.
H.R. 5011--Military Personnel Financial Services Protection Act
H.R. 5011 would ban the sale of mutual funds sold through
contractual plans. The bill also would require insurance
companies to provide certain notices about insurance policies
offered by the U.S. government when selling an insurance policy
to servicemembers or while marketing on military installations.
The bill would require the Department of Defense to maintain a
list of agents and advisors barred from doing business on
military installations. Finally, the bill would amend
securities law to require registered securities associations to
provide public access to certain consumer information and to
file certain financial information with the Securities and
Exchange Commission.
CBO estimates that implementing H.R. 5011 would not result
in a significant cost to the federal government and would not
affect direct spending or revenues.
H.R. 5011 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA), and any costs to
state, local, or tribal government would be voluntary. The bill
would encourage state insurance regulators to coordinate with
the Department of Defense in order to protect military
personnel from predatory life insurance schemes. Based on
information from state insurance commissioners, CBO estimates
that the costs of such cooperation would not be significant.
H.R. 5011 would impose private-sector mandates as defined
in UMRA on registered investment companies, registered
securities associations, investment advisors, and those selling
life insurance products to members of the Armed Forces on
military installations of the United States. CBO's estimate of
the cost of those private-sector mandates will be detailed in a
separate statement.
The CBO staff contacts for this estimate are Melissa E.
Zimmerman (for federal costs), and Sarah Puro (for the state
and local impact. This estimate was approved by Robert A.
Sunshine, Assistant Director for Budget Analysis.
Federal Mandates Statement
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates Reform
Act.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Constitutional Authority Statement
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds that the
Constitutional Authority of Congress to enact this legislation
is provided by Article 1, section 8, clause 1 (relating to the
general welfare of the United States) and clause 3 (relating to
the power to regulate interstate commerce).
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.
Exchange of Committee Correspondence
Committee on Armed Services,
House of Representatives,
Washington, DC, October 4, 2004.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
Rayburn House Office Building.
Dear Mr. Chairman: On September 29, 2004, the Committee on
Financial Services reported H.R. 5011, a bill to prevent the
sale of abusive insurance and investment products to military
personnel. As you know, H.R. 5011, as ordered reported,
contained provisions within the jurisdiction of the Committee
on Armed Services.
Because of your willingness to consult with this Committee,
and because of your desire to move this legislation
expeditiously, I will waive consideration of the bill by the
Committee on Armed Services. By agreeing to waive this
consideration of the bill, the Committee does not waive its
jurisdiction over H.R. 5011. In addition, should a conference
be convened on this legislation, the Committee reserves its
authority to seek conferees on any provisions of the bill that
are within its jurisdiction. I ask for your commitment to
support any request for conferees by the Committee on H.R. 5011
or similar legislation.
I request that you include this letter and your response in
the Congressional Record during your consideration of the
legislation on the House floor. Thank you for your
consideration of these matters.
With best wishes.
Sincerely,
Duncan Hunter,
Chairman.
------
House of Representatives,
Committee on Financial Services,
Washington, DC, October 4, 2004.
Hon. Duncan Hunter,
Chairman, Committee on Armed Services, Rayburn House Office Building,
Washington, DC.
Dear Chairman Hunter: Thank you for your recent letter
regarding your committee's jurisdictional interest in H.R.
5011, the Military Personnel Financial Services Protection Act.
I appreciate all of your efforts to expedite consideration of
this important legislation.
I acknowledge your committee's jurisdictional interest in
section 11 of the bill as ordered reported by the Committee on
Financial Services and appreciate your cooperation in allowing
speedy consideration of the legislation. I agree that your
decision to forego further action on the bill will not
prejudice the Committee on Armed Services with respect to its
jurisdictional prerogatives on this or similar legislation. I
will support your request for an appropriate number of
conferees should there be a House-Senate conference on this or
similar legislation.
Finally, I will include a copy of your letter and this
response in the Committee's report on the bill and the
Congressional Record when the legislation is considered by the
House.
Thank you again for your assistance.
Sincerely,
Michael G. Oxley,
Chairman.
Section-by-Section Analysis of the Legislation
Section 1. Short title
This section provides the short title for the bill, the
``Military Personnel Financial Services Protection Act''.
Section 2. Congressional findings
The section sets forth certain Congressional findings
describing the need to protect members of the Armed Forces from
the sale of inappropriate financial products and from abusive
and misleading sales tactics.
Section 3. Prohibition on future sales of periodic payment plans
This section amends section 27 of the Investment Company
Act of 1940 by prohibiting both the issuance of periodic
payment plan certificates by registered investment companies
and the sales of periodic payment plan certificates by
registered investment companies and the depositors and
underwriters of such companies. This section does not alter,
invalidate, or affect the rights or obligations under any
periodic payment plan certificates issued before the
aforementioned prohibition takes effect.
Section 4. Method of maintaining broker/dealer registration,
disciplinary, and other data
This section amends section 15A(i) of the Securities
Exchange Act of 1934, which requires a registered securities
association to maintain a toll-free telephone listing to
receive inquiries regarding disciplinary actions involving its
members and their associated persons, and to respond to those
inquiries in writing. The amended language requires a
registered securities association to establish a system to
collect and maintain registration information, and to establish
an easily accessible electronic or other process (in addition
to the toll-free telephone listing) to respond to inquiries
about registration information.
Registration information will be collected on the
association's members and their associated persons, as well as
the members and associated persons of any registered national
securities exchange that uses the system for the registration
of such persons. The association may charge persons making
inquiries, other than an individual investor, reasonable fees
for producing a response.
The registered securities association, in consultation with
the participating registered national securities exchanges,
also will be required to adopt rules on the process for making
inquiries and responses, and on the establishment of an
administrative process for disputes that may arise concerning
the accuracy of information given in responses to inquiries. As
under current law, the association and participating exchanges
will not be liable to any persons for actions taken or omitted
in good faith under this provision.
Section 5. Filings depositories for investment advisors
This section reorganizes and codifies in the Investment
Advisers Act of 1940 provisions of the National Securities
Markets Improvement Act of 1996, in which Congress directed the
Commission to establish an electronic filing system, and
mandated the creation of a public disclosure program, for
investment advisers. Pursuant to this directive, the Commission
designated the NASD to operate the electronic filing system for
investment advisers, which is called the Investment Adviser
Registration Depository, and created an Internet-based public
disclosure program containing investment adviser registration
and disciplinary information.
This section codifies this arrangement, although it
requires a toll-free telephone listing, or electronic means,
for receiving and responding to inquiries for registration
information.
The new provision recognizes that the NASD also operates
the public disclosure program on behalf of the Commission and
conforms the Investment Advisers Act provision to the terms of
the Securities Exchange Act of 1934 so that the NASD has
immunity from liability for actions taken in good faith in
operating the investment adviser public disclosure program.
Section 6. State insurance jurisdiction on military installations
This section clarifies State jurisdiction over the
regulation of the business of insurance as conducted on Federal
land or facilities in the United States and abroad, including
military installations. State insurance jurisdiction will
generally apply to all private insurance activities on Federal
land, except to the extent there is direct conflict with
applicable and authorized Federal rules or where a State law
would not apply to the activity even if it were being conducted
on State land.
To the extent there is a conflict among State laws that
would apply to insurance activities conducted on Federal land,
the section provides that the State law that has priority (and
primary enforcement responsibility) is that of the State within
which the Federal land is located. If the Federal land or
facility is located outside of the United States (such as in a
foreign country), then the State with primary jurisdiction is
the State that primarily regulates the individual or
entityengaged in the insurance activity. For the regulation of any
activity involving an insurance producer (e.g., agent or broker), where
the producer is licensed in multiple States and there is a conflict
among the laws of those States, the law of the State that issued the
producer's resident license applies and that State is primarily
responsible for enforcing its laws against that producer. For the
regulation of any activity involving any other insurance entity where
there is a conflict among State laws that would otherwise apply, such
as questions regarding an insurance product from an insurer licensed in
multiple States, then the law of the State of the entity's domicile
applies and that State is primarily responsible for enforcing its laws
against that entity.
These provisions are intended to ensure that there are no
gaps between Federal and State insurance protections for
military personnel, that States are able and required to
enforce their insurance laws with respect to private insurance
activities on Federal land, and that there is always at least
one State that is recognized as responsible for regulating any
private insurance activity conducted on Federal land.
Section 7. Required development of military personnel protection
standards regarding insurance sales
This section expresses the intent of Congress that the
States collectively work together with the Secretary of Defense
to ensure that there are appropriate standards implemented to
protect members of the military from dishonest and predatory
insurance sales practices while on military installations. The
goal of this provision is to promote the development,
identification, and implementation of uniform and coordinated
protection standards to ensure that members of the military are
not exposed to abusive sales tactics on military installations.
The Committee intends the National Association of Insurance
Commissioners (NAIC) (or NCOIL or similar organization of
States) to work collaboratively with the Secretary to determine
the appropriate regulatory division of insurance protections,
under whose jurisdiction each protection should be implemented,
and how each protection should be enforced in a coordinated and
uniform manner to avoid regulatory gaps or inappropriate
inconsistencies.
To achieve the goal of this section, the Committee expects
that each State will identify its role in promoting these
uniform standards within 12 months of the date of enactment of
this legislation. The NAIC is expected to work with the
Secretary of Defense to determine to what extent the States
have implemented appropriate and uniform protection standards,
and submit a report on how these goals have been met to the
Committee on Financial Services of the House of Representatives
and the Committee on Banking, Housing, and Urban Affairs of the
Senate. The Committee intends that this report will include a
description of the work of the States and the Secretary in
balancing responsibilities to ensure coordinated and uniform
implementation to avoid any gaps in protecting our military
personnel from inappropriate insurance products and sales
practices.
Section 8. Required disclosures regarding life insurance
The purpose of this section is to ensure that no life
insurance is sold to a member of the Armed Forces pursuant to
an on-installation solicitation unless certain written
disclosures are made first. If an insurer or producer solicits
insurance on a military installation, then before the sale of
the insurance, the insurer or producer must disclose to the
consumer that the Federal Government has not sanctioned,
recommended, or encouraged the sale of the product and that
subsidized life insurance may be available from the Federal
Government. If the solicitation is occurring on Federal land
outside of the United States, then the disclosure must also
include the address and phone numbers where consumer complaints
are received by the appropriate State insurance departments
(that primarily regulate the producer and insurer selling the
product). The disclosure must be made in plain and readily
understandable language in a type font at least as large as the
font used for the majority of the policy. These written
disclosures will help to ensure that members of the armed
forces make an informed decision before purchasing private life
insurance after having been solicited on a military
installation.
Penalties have been provided as an enforcement tool for the
intentional failure to provide written disclosures. If it is
determined by a State or Federal agency, or in a final court
proceeding, that the individual or entity intentionally failed
to provide a disclosure as required by this section, then that
individual or entity will be prohibited from engaging in the
business of insurance on Federal facilities. These penalties do
not apply to insurance activities that are specifically
contracted by or through the Federal or any State Government or
are specifically exempted from the applicability of this
legislation by Federal or State law, regulation, or order that
specifically refers to this section.
States are encouraged to develop and adopt, in materially
identical form, a standard setting forth the requirements for
disclosures under this section that apply to the business of
insurance as sold to military personnel on military
installations. The goal is to make this section dynamic to
respond to future developments and to allow the States to
develop their own standards. If standards are developed by
amajority of the States, then those standards will apply in lieu of the
requirements of this section for activities governed by those States
(so long as there is no direct conflict with any Federal requirement
other than this section). For purposes of this provision, the term
``materially identical form'' means that with respect to a particular
activity in question, the exact same conduct is required or prohibited
or otherwise regulated in exactly the same manner. The disclosures
required by the majority of States may differ from or exceed the
disclosures provided for in this section, as long as such disclosures
are uniform in all material respects across all those States.
Section 9. Improving life insurance product standards
This section requests that the NAIC work with the Secretary
of Defense to study and report to Congress on ways to improve
the quality and sale of life insurance products sold by
insurers and life insurance agents on military installations.
This section is intended to focus the States and the Secretary
on stopping not only abusive and misleading sales practices,
but also inappropriate products from being sold to the men and
women protecting the United States. Among other solutions,
Congress intends that the study consider limiting sales
authority to companies and producers that are certified as
meeting appropriate best practices (such as the Insurance
Marketplace Standards Association), and developing appropriate
standards to stop bad products from being targeted to military
personnel regardless of whether they are on or off
installation. If the NAIC does not submit the report to the
Committees of jurisdiction as directed by this section, then
the Comptroller General of the United States must report to
Congress on any proposals that have been made by relevant
parties to improve the quality and sale of life insurance
products sold to military personnel.
Section 10. Required reporting of disciplined insurance agents
This section effectively requires insurers whose producers
are soliciting life insurance on military installations to
implement a system to report to the appropriate insurance
department any disciplinary actions taken against any of those
producers by the military that the insurer is aware of, as well
as any significant disciplinary action imposed by the insurer.
The term ``significant'' is intended by the Committee to
distinguish disciplinary actions for infractions that have
bearing on the likelihood of a producer to engage in improper
sales activities as opposed to minor actions that have no
bearing on the producer's integrity or conduct and that would
not otherwise be appropriate to report to a State.
This section also expresses the intent of Congress that the
States collectively implement a system to receive reports of
disciplinary actions taken against producers with respect to
sales on military installations, and to disseminate information
on disciplinary actions among themselves and the Secretary of
Defense.
These provisions, along with section 11, are intended to
prevent life insurance producers disciplined at one military
installation from continuing to sell insurance at other Federal
facilities, by ensuring that information on disciplinary
actions against producers is being effectively communicated
among all the relevant parties. The Committee expects the
States to fulfill the requirements of this section by using the
Producer Database (PDB) system of the National Insurance
Producer Registry, a non-profit affiliate of the NAIC that most
State insurance departments rely on to both share information
regarding the licensing status of producers and make that
information available to insurers. The Committee intends that
all States utilize the PDB or a similar system, and improve PDB
to be able to receive and share relevant information on
producer licensing status with the Secretary of Defense.
Section 11. Registry of barred insurance agents and financial advisors
This section directs the Secretary of Defense to create and
maintain a registry of banned or barred financial advisors and
life insurance agents. The Secretary of Defense will be
responsible for updating and maintaining the registry, which
will provide the name, address, and other identifying
information of the banned or barred agent or advisor. The
registry must be accessible and searchable by local
installation commanders and appropriate Federal and State
financial regulators.
The Secretary of Defense is further required to promptly
notify the appropriate Federal and State regulators when an
individual has been added to or removed from the registry. The
Secretary of Defense is also responsible for implementing an
appeal process, and for issuing regulations to ensure the
maintenance and operation of the registry.
The Committee intends this section to provide local
installation commanders with adequate information to make
access determinations for life insurance producers. The
Committee expects the Secretary to fulfill the notification
requirement by providing and receiving information through an
electronic system networked with the NAIC's PDB or other
similar system established by the States pursuant to section
10, as well as any similar systems created by the Securities
and Exchange Commission or the NASD, to ensure that
installation commanders, the Secretary, the appropriate
securities and insurance regulators, and financial companies
share information regarding disciplinary actions taken against
producers and advisors to prevent the migration of rogue
salespersons.
Section 12. Sense of Congress
This section indicates the sense of Congress that the
Federal and State agencies responsible for regulation of
insurance and securities should provide advice to the
appropriate Federal entities to consider significantly
increasing the life insurance coverage made available through
the Federal Government to members of the military, encouraging
greater financial literacy and objective financial counseling
for military service members, and improving the benefits and
matching contributions under the Thrift Savings Plan for
military personnel.
Section 13. Definitions
This section defines certain terms used in the legislation.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
SECTION 27 OF THE INVESTMENT COMPANY ACT OF 1940
PERIODIC PAYMENT PLANS
Sec. 27. (a) * * *
* * * * * * *
(i)(1) * * *
(2) It shall be unlawful for any registered separate account
funding variable insurance contracts, or for the sponsoring
insurance company of such account, to sell any such contract
unless--
(A) such contract is a redeemable security; and
(B) the insurance company complies with section
[26(e)] 26(f) and any rules or regulations issued by
the Commission under section [26(e)] 26(f).
(j) Termination of Sales.--
(1) Termination.--Effective 30 days after the date of
enactment of the Military Personnel Financial Services
Protection Act, it shall be unlawful, subject to
subsection (i)--
(A) for any registered investment company to
issue any periodic payment plan certificate; or
(B) for such company, or any depositor of or
underwriter for any such company, or any other
person, to sell such a certificate.
(2) No invalidation of existing certificates.--
Paragraph (1) shall not be construed to alter,
invalidate, or otherwise affect any rights or
obligations, including rights of redemption, under any
periodic payment plan certificate issued and sold
before 30 days after such date of enactment.
----------
SECTION 15A OF THE SECURITIES AND EXCHANGE ACT OF 1934
REGISTERED SECURITIES ASSOCIATIONS
Sec. 15A. (a) * * *
* * * * * * *
[(i) A registered securities association shall, within one
year from the date of enactment of this section, (1) establish
and maintain a toll-free telephone listing to receive inquiries
regarding disciplinary actions involving its members and their
associated persons, and (2) promptly respond to such inquiries
in writing. Such association may charge persons, other than
individual investors, reasonable fees for written responses to
such inquiries. Such an association shall not have any
liability to any person for any actions taken or omitted in
good faith under this paragraph.]
(i) Obligation To Maintain Registration, Disciplinary and
Other Data.--
(1) Maintenance of system to respond to inquiries.--A
registered securities association shall--
(A) establish and maintain a system for
collecting and retaining registration
information;
(B) establish and maintain a toll-free
telephone listing, and a readily accessible
electronic or other process, to receive and
promptly respond to inquiries regarding--
(i) registration information on its
members and their associated persons;
and
(ii) registration information on the
members and their associated persons of
any registered national securities
exchange that uses the system described
in subparagraph (A) for the
registration of its members and their
associated persons; and
(C) adopt rules governing the process for
making inquiries and the type, scope, and
presentation of information to be provided in
response to such inquiries in consultation with
any registered national securities exchange
providing information pursuant to subparagraph
(B)(ii).
(2) Recovery of costs.--Such an association may
charge persons making inquiries, other than individual
investors, reasonable fees for responses to such
inquiries.
(3) Process for disputed information.--Such an
association shall adopt rules establishing an
administrative process for disputing the accuracy of
information provided in response to inquiries under
this subsection in consultation with any registered
national securities exchange providing information
pursuant to paragraph (1)(B)(ii).
(4) Limitation of liability.--Such an association, or
an exchange reporting information to such an
association, shall not have any liability to any person
for any actions taken or omitted in good faith under
this subsection.
(5) Definition.--For purposes of this subsection, the
term ``registration information'' means the information
reported in connection with the registration or
licensing of brokers and dealers and their associated
persons, including disciplinary actions, regulatory,
judicial, and arbitration proceedings, and other
information required by law, or exchange or association
rule, and the source and status of such information.
* * * * * * *
----------
INVESTMENT ADVISERS ACT OF 1940
TITLE II--INVESTMENT ADVISERS
* * * * * * *
SEC. 203A. STATE AND FEDERAL RESPONSIBILITIES.
(a) * * *
* * * * * * *
[(d) Filing Depositories.--The Commission may, by rule,
require an investment adviser--
[(1) to file with the Commission any fee,
application, report, or notice required by this title
or by the rules issued under this title through any
entity designated by the Commission for that purpose;
and
[(2) to pay the reasonable costs associated with such
filing.]
[(e)] (d) State Assistance.--Upon request of the securities
commissioner (or any agency or officer performing like
functions) of any State, the Commission may provide such
training, technical
assistance, or other reasonable assistance in connection with
the regulation of investment advisers by the State.
ANNUAL AND OTHER REPORTS
Sec. 204. [Every investment] (a) In General.--Every
investment adviser who makes use of the mails or of any means
or instrumentality of interstate commerce in connection with
his or its business as an investment adviser (other than one
specifically exempted from registration pursuant to section
203(b) of this title), shall make and keep for prescribed
periods such records (as defined in section 3(a)(37) of the
Securities Exchange Act of 1934), furnish such copies thereof,
and make and disseminate such reports as the Commission, by
rule, may prescribe as necessary or appropriate in the public
interest or for the protection of investors. All records (as so
defined) of such investment advisers are subject at any time,
or from time to time, to such reasonable periodic, special, or
other examinations by representatives of the Commission as the
Commission deems necessary or appropriate in the public
interest or for the protection of investors.
(b) Filing Depositories.--The Commission may, by rule,
require an investment adviser--
(1) to file with the Commission any fee, application,
report, or notice required to be filed by this title or
the rules issued under this title through any entity
designated by the Commission for that purpose; and
(2) to pay the reasonable costs associated with such
filing and the establishment and maintenance of the
systems required by subsection (c).
(c) Access to Disciplinary and Other Information.--
(1) Maintenance of system to respond to inquiries.--
The Commission shall require the entity designated by
the Commission under subsection (b)(1) to establish and
maintain a toll-free telephone listing, or a readily
accessible electronic or other process, to receive and
promptly respond to inquiries regarding registration
information (including disciplinary actions,
regulatory, judicial, and arbitration proceedings, and
other information required by law or rule to be
reported) involving investment advisers and persons
associated with investment advisers.
(2) Recovery of costs.--An entity designated by the
Commission under subsection (b)(1) may charge persons
making inquiries, other than individual investors,
reasonable fees for responses to inquiries made under
paragraph (1).
(3) Limitation on liability.--An entity designated by
the Commission under subsection (b)(1) shall not have
any liability to any person for any actions taken or
omitted in good faith under this subsection.
* * * * * * *
----------
SECTION 306 OF THE NATIONAL SECURITIES MARKETS IMPROVEMENT ACT OF 1996
[SEC. 306. INVESTOR ACCESS TO INFORMATION.
[The Commission shall--
[(1) provide for the establishment and maintenance of
a readily accessible telephonic or other electronic
process to receive inquiries regarding disciplinary
actions and proceedings involving investment advisers
and persons associated with investment advisers; and
[(2) provide for prompt response to any inquiry
described in paragraph (1).]
SUPPLEMENTAL VIEWS
The Financial Services Committee should be commended for
moving promptly to examine reports that certain financial
products are being sold inappropriately to our military
personnel. An article in the New York Times last week indicates
that one of the companies that testified at the Sept. 9 hearing
is already in the process of making refunds.
However, I am concerned that the Military Personnel
Financial Services Protection Act (H.R. 5011) does little to
directly address abuses by those who sell insurance on bases to
soldiers at formations or other mass meetings. Instead, the
bill enacts a complete prohibition on so-called contractual or
periodic payment mutual funds, which, according to the
testimony received, are sold voluntarily with full disclosure
to officers at individual meetings held off base.
This is the first time in recent memory that this committee
has ever proposed banning a product that is fully permissible
under current law and that--again according to testimony
received by the committee--is used by thousands of senior
military officials to facilitate their financial security.
Specifically, we have been told that the clients of First
Command Financial Planning, the Texas-based company principally
involved in this market, has invested $734.4 million aggregate
in these accounts in just the last 12 months. The sales charge
on that amount was about $44 million, or about six percent.
What is the basis for outlawing a product that over half a
million individuals, including half the flag officers currently
on active duty, have freely chosen? Do we really believe that
individuals charged with the deployment of billions of dollars
of military equipment, are not sophisticated enough to make
their own financial decisions?
When the Congress last looked at this product in 1970, we
recognized periodic payment mutual funds are a valuable means
to help encourage savings by people who do not have large
amounts of discretionary income. I see no evidence in the
record indicating that the judgment then was incorrect. In
fact, testimony we recently received indicates that these
periodic payment mutual funds are working for those military
members choosing to utilize them.
Before voting on H.R. 5011, Congress should consider
whether it is in the best interests of our armed services to
substitute our judgment for theirs by banning a financial
product that the armed services' deem well-suited for their
financial security.
Ron Paul.