A financial adviser in Massachusetts is questioning if the U.S. Securities and Exchange Commission (SEC) mandates that insurance agents tied to registered investment advisers disclose their commission amounts on fixed indexed annuities.
The SEC denied a request for admission on this guidance without adequately addressing the issue’s substance, which legal standards require. This type of request, a discovery tool, obliges one party to confirm or deny a statement under oath.
The defendant is now asking the court to force the SEC to respond to this request or accept it as admitted.
This guidance’s presence or absence is pivotal in SEC v. Cutter Financial Group LLC, where Jeffrey Cutter, the firm’s founder, faces claims from the SEC.
The agency, in its March 2023 complaint, alleges Cutter directed clients toward specific insurance products, breaching his investment adviser duties by obscuring his financial incentives to sell them.
The SEC also claims Cutter transferred clients into new annuity contracts without disclosing “substantial, up-front commissions” he received.
According to the complaint, he allegedly misled insurance companies to facilitate these contract changes, securing additional commissions. Cutter and his firm, CFG, reportedly breached fiduciary duties, placing personal interests over client interests, failing to disclose material conflicts, and not obtaining informed client consent.
Additionally, the SEC asserts Cutter and CFG did not disclose $1.1 mn in free marketing services and payments received from marketing firms for selling annuities to CFG clients.
Neither the SEC nor the advisory firm commented beyond court filings, and industry trade groups were unavailable for comment on the case’s potential impact.