Nancy M. Stiles, Esquire
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Washington, D.C. 20005-3934

Dear Ms. Stiles:

This in response to your proposal, on behalf of [BHC], and its subsidiary, [FSB], that two subsidiaries of [FSB] enter into joint employee arrangements to permit the sale of annuities from their premises.¹ Under the proposal, independent insurance agencies and broker dealers ("Agencies") would lease space from [FSB's] subsidiaries, [word(s) deleted] ("FSFL"), [word(s) deleted] , and [word(s) deleted] ("BSC"), [word(s) deleted] , for the sale of fixed and variable annuities from the premises of FSFL and BSC.² Annuities sales would be made by employees of FSFL or BSC who would be acting in their capacity as independent contractors of Agencies.

The dual employees would be licensed in the appropriate states as insurance agents, and would be registered with the SEC and the NASD as registered representatives of the Agencies selling variable annuities. The dual employees would sell annuities only on behalf of Agencies. The leases between FSFL or BSC and Agencies would be entered into on an arm's length basis on terms at least as favorable to FSFL and BSC as those prevailing for comparable transactions with or involving other nonaffiliated companies. Rent payments under the leases would be a fixed minimum plus a percentage of revenue from annuity sales.

Agencies would be responsible for assuring that the dual employees are properly licensed to engage in annuity sales activities. Agencies also would be responsible for providing training and supervision to the dual employees in connection with these annuity sales activities. Agencies would enter into separate agreements directly with the dual employees that would cover the employees' obligations to Agencies and the compensation to be paid to the employees for sales of annuities. Agencies would pay compensation for the sales of annuities directly to the dual employees. [FSB], FSFL and BSC would be held harmless for the activities of the employees when they are under the control and supervision of Agencies.

In selling annuities, the dual employees would follow the guidelines set forth in 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 or securities. These disclosures would include the fact that the annuities are not products of [FSB], FSFL or BSC; that each Agency is a separate and distinct corporate entity; that the annuities are not insured by the FDIC, are not deposits of or other obligations of [FSB] or guaranteed by [FSB]; and that the annuities sold are subject to investment risk, including possible loss of principal.

You have represented that neither [BHC] nor any nonbank subsidiary of [BHC] will engage in the sale of annuities, except as may be permitted under the authority [BHC] has to sell insurance in towns with populations not exceeding 5,000.³ Based on all of the facts of record, staff will not recommend that the Board take action if [BHC] proceeds with this proposal. In forming this opinion, staff has relied on the facts you have presented to date, including in particular the fact that the proposal involves financial activities, and that [FSB] and its subsidiaries have taken steps to reinforce the employee relationship with Agencies and to address the potential for customer confusion about their role in these activities. Any change in circumstances or any evidence that the sale of annuities is in fact being conducted by [BHC] or a nonbank affiliate may result in a different opinion. If in the future, the terms of the lease between Agencies and FSFL or BSC indicate that [FSB], FSFL or BSC is engaged in the sale of annuities for purposes of the Bank Holding Company Act, the Federal Reserve System may require termination of the .proposed arrangements 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

Footnotes 1. [Sentence deleted] Return to text 2. [Sentence deleted] Return to text 3. See 12 U.S.C. � 1843(c)(8)(C); 12 CFR 225.25(8)(iii).Return to text