Advisor Jeffrey Cutter Appeals SEC Case Ruling on Insurance Commission Disclosures

Investment advisor Jeffrey Cutter is appealing a Massachusetts jury's verdict which found his firm, Cutter Financial Group, in violation of Section 206(2) of the Investment Advisers Act of 1940 for inadequate disclosure regarding commissions on insurance product sales to advisory clients.

The jury acquitted Cutter and his firm of violating Section 206(1), which addresses fraudulent conduct. The SEC had charged Cutter for recommending clients invest in fixed index annuities (FIAs) that generated substantial up-front commissions without sufficiently disclosing these incentives, citing earnings of over $9.3 million from FIA sales since 2014, compared to lower advisory fees.

In their appeal, Cutter's legal team argues that the adviser act does not dictate specific disclosure requirements for insurance product sales and emphasized the McCarran-Ferguson Act, which limits federal regulation over insurance absent explicit authorization.

The appeal asserts that the SEC did not give fair notice regarding the required disclosure of commission details in insurance sales to advisory clients and requests either a dismissal of the verdict or a new trial. Industry observers note the case's significance in the ongoing debate over fiduciary standards for advisors who also sell insurance products, a key regulatory issue for the insurance and advisory markets.

The change in SEC leadership, with Paul S. Atkins confirmed as chair, adds uncertainty to how enforcement in such dual-role scenarios may evolve under differing regulatory philosophies. This legal proceeding highlights the complexities of compliance at the intersection of securities advisory and insurance product sales, with potential broad implications for regulatory oversight and disclosure practices moving forward.