| March 8, 1996 |
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David B. Kennedy, Esquire Dear Mr. Kennedy: This is in response to your proposal, on behalf of [word(s) deleted] (the "Company"), that [word(s) deleted], the Company's thrift subsidiary (the "Thrift"), enter into an arrangement to permit the sale of annuities from its premises. The Thrift proposes to lease space on its premises to [word(s) deleted] ("Insurance Services"), a subsidiary of [word(s) deleted], the Company's bank subsidiary (the "Bank"), from which Insurance Services would sell fixed and variable annuities to customers of the Thrift. Annuities sales would be done by employees of Insurance Services who are also employees of the Thrift. The dual employees would be licensed in Wisconsin as insurance agents of Insurance Services, and would sell annuities only on behalf of Insurance Services. [Word(s) deleted] and Insurance Services are permitted under relevant Wisconsin law to sell annuities at any location in Wisconsin. The dual employees also would be registered with the SEC and the NASD as registered representatives of Insurance Services. The lease between Insurance Services and Thrift would be entered into on an arm's length basis, consistent with section 23B of the Federal Reserve Act, and would be on terms at least as favorable as those prevailing for comparable transactions with or involving other nonaffiliated companies. Insurance Services will be responsible for the licensing of the dual employees in connection with annuity sales activities. Insurance Services would also provide initial and ongoing training and supervision to the dual employees in connection with these annuity sales activities. Insurance Services would enter into separate agreements directly with the dual employees that would cover the employees' obligations to Insurance Services and the compensation to be paid to the employees for sales of annuities, and Insurance Services would pay compensation for the sales of annuities directly to the dual employees. The Thrift would be held harmless for the activities of the employees when they are under the control and supervision of Insurance Services. The dual employees would sell annuities on the Thrift's premises in areas separate and distinct from areas of the Thrift where insured deposits are accepted, and would comply with the Interagency Statement on Retail Sales of Nondeposit Investment Products. The employees would use disclosures, business cards, marketing information, and application and acknowledgment forms to distinguish sales of annuities from sales of deposit products at the Thrift. These disclosures would include the fact that the annuities are not products of the Thrift, that Insurance Services is a separate and distinct corporate entity, that the annuities are not insured by the FDIC, are not deposits of or other obligations of the Thrift or affiliated banks or guaranteed by the Thrift or affiliated banks, and are subject to investment risk, including possible loss of principal. You have represented that neither Company nor any nonbank subsidiary of Company 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, and that the Thrift has taken steps to reinforce the employee relationship with Insurance Services and to address the potential for customer confusion about the Thrift's 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 Insurance Services and Thrift indicate that Thrift 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 Chicago |
