| March 8, 1996 |
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Carolyn V. Kelly, Esquire Dear Ms. Kennedy: This is in response to your proposal, on behalf of [word(s) deleted] (the "Company"), for an employee of [word(s) deleted] , the Company's securities brokerage subsidiary ("Securities"), to act as an independent contractor of a third party insurance agent ("Agent") and sell fixed and variable annuities and life insurance products from the premises of [word deleted] subsidiary bank, [word(s) deleted] ("Bank"). Securities currently engages in securities brokerage and investment advisory activities on the premises of the Bank. Securities makes lease payments to the Bank on terms and under circumstances that are substantially the same, or at least as favorable to the Bank, as those prevailing for comparable transactions with or involving nonaffiliated companies. One of the employees of Securities, who also is an employee of the Bank (the "Dual Employee"), proposes to enter into an arrangement with Agent to sell fixed and variable annuities and life insurance products from the space at the Bank leased by Securities. The Dual Employee would be an independent contractor of Agent, and would sublease space at a fixed monthly rent directly from Securities. The Dual Employee would be licensed in Texas as an insurance agent of Agent, and would sell annuities and life insurance only on behalf of Agent. The Dual Employee also would be registered with the SEC and the NASD as a registered representative of Securities and Agent. Agent will be responsible for the licensing of the Dual Employee in connection with annuity and life insurance sales activities. Agent would also provide initial and ongoing training and supervision to the Dual Employee in connection with these sales activities. Agent would enter into a separate agreement directly with the Dual Employee that would cover the employee's obligations to Agent and the compensation to be paid to the employee for sales of annuities and life insurance products, and Agent would pay compensation for these sales directly to the employee. The Company, Securities, and the Bank would be held harmless for the activities of the Dual Employee when she is under the control and supervision of Agent. The Dual Employee would sell annuities and life insurance on the Bank's premises in areas separate and distinct from areas of the Bank where insured deposits are accepted, and would comply with the Interagency Statement on Retail Sales of Nondeposit Investment Products. The Dual Employee would use disclosures, business cards, marketing information, and application and acknowledgment forms to distinguish sales of annuities and life insurance from sales of securities. These disclosures would include the fact that the annuities and life insurance are not products of the Bank, that Agent is a separate and distinct corporate entity, that neither the annuities nor the life insurance are insured by the FDIC or are deposits of or other obligations of the Bank or guaranteed by the Bank, and that the annuities are subject to investment risk, including possible loss of principal. You have represented that neither Company nor any nonbank affiliate will engage in the sale of annuities. Based on all of the facts of record, staff will not recommend that the Board take action if the Company proceeds with this proposal. This decision is limited to the specific facts of the Company's proposal as you have presented them to Board staff, in particular the fact that the proposal involves financial activities, the Dual Employee will be an independent contractor of Agent, and that Securities has taken steps to address the potential for customer confusion about Securities' role. Moreover, this opinion is made in reliance on the facts you have presented to date, and any change in circumstances or any evidence that the sale of annuities is in fact being conducted by Company or a nonbank affiliate may result in a different opinion. If in the future, the terms of the lease between Securities and the Dual Employee indicate that Securities is engaged in the sale of annuities for purposes of the Bank Holding Company Act, the Federal Reserve System may require termination of this proposed arrangement to ensure compliance with, and to prevent evasion of, the provisions of the Act. Accordingly, you should notify Board staff promptly if any facts presented by you should change.
Sincerely yours,
(signed) Scott G. Alvarez
Scott G. Alvarez cc: Federal Reserve Bank of Dallas |
