Applicability of Rule 2820(g) to payments to an associated person from an issuer's deferred compensation plan.
October 14, 2002
Second Vice President and Associate General Counsel
Acacia Life Insurance Company
(On behalf of The Advisors Group, Inc.)
7315 Wisconsin Avenue
Bethesda, MD 20814
Re: NASD Rule 2820(g)
Dear Ms. Gallo:
I am responding to your letter dated June 5, 2002 to NASD Regulation, Inc. wherein you request interpretive advice regarding the application of NASD Rule 2820(g) (Variable Contracts of an Insurance Company) on behalf of The Advisors Group, Inc. (“TAG”), which is the principal underwriter of certain variable life insurance contracts issued by Acacia National Life Insurance Company (“ANLIC”).
Based on your letter, I understand the facts to be as follows: ANLIC is the issuer of certain variable life insurance contracts. TAG is the principal underwriter for ANLIC. ANLIC also contracts with various General Agents (“GA’s”) to distribute its products. If the GA’s are registered with a broker/dealer other than TAG (“BD”), TAG enters into a selling agreement with the BD and pays GA commissions directly to the BD.
A GA registered with a BD other than TAG has requested that he be able to defer a portion of his ANLIC variable product commissions to a non-qualified agent deferred compensation plan available at ANLIC (the “Plan”). The Plan currently allows deferral of fixed-product commissions only and would need to be amended to allow variable product commission deferrals. Before, you amend the Plan, you seek guidance on whether such deferrals would violate NASD Rule 2820(g).
NASD Rule 2820(g)
NASD Rule 2820(g) generally provides that, in connection with the sale and distribution of variable contracts, an associated person of an NASD member may not accept any compensation from anyone other than the member with which the person is associated. An exception from this general prohibition permits the receipt of compensation by an associated person from a non-member company if the member agrees to the arrangement, the receipt is treated as compensation received by the member for purposes of NASD rules, the recordkeeping requirement in the rule is satisfied, and the member relies on an interpretive release or “no-action” letter by the staff of the Securities and Exchange Commission (the “Commission”) that specifically permits such an arrangement under Section 15(a) of the Securities Exchange Act of 1934. See NASD Notice to Members 98-75 and NASD Notice to Members 99-55, Question 21.
Specifically, NASD Rule 2820(g)(1)(B) requires that the member rely on an appropriate rule, regulation, interpretive release, interpretive letter, or “no-action” letter issued by the Commission that applies to the specific fact situation of the arrangement proposed. In your letter, you have not cited to, or provided a copy of, any Commission “no-action” letter or interpretive release that you can rely on for your specific proposal. Therefore, subsection 1(B) of Rule 2820(g) has not been satisfied.
For the reasons discussed above, NASD staff is unable to find that the proposal described in your letter would not violate NASD Rule 2820(g). We recommend that you consult with the Commission to seek their interpretive advice on your specific facts.
I hope this letter responds to your inquiry. Please note that the opinions expressed herein are staff opinions only and have not been reviewed or endorsed by NASD’s Board of Directors. This letter responds only to the issues that you have raised based on the facts as you have described them, and does not address any other rule or interpretation of NASD, or all the possible regulatory and legal issues involved.
/s/ Kosha Dalal
John P. Nocella, Sr. Vice President and District Director, District 9