Primerica 2010 Annual Report - Direct Selling News

we do not currently offer, principally indexfunds and exchange traded funds. Theseinvestment options typically have low feestructures and provide some of the attributesof mutual funds, such as risk diversification. Ifthese products continue to gain traction amongour client base as viable alternatives to mutualfund investments, our investment and savingsproducts revenues may decline.In addition to sales commissions and assetbasedcompensation, a significant portion ofour earnings from investment and savingsproducts comes from recordkeeping servicesthat we provide to Invesco, Legg Mason andPioneer Investments and from fees earned forcustodial services we provide to clients withretirement plan accounts in the funds of thesemutual fund companies. We also receiverevenue sharing payments from each of thesemutual fund companies. A decision by one ormore of these fund companies to alter ordiscontinue their current arrangements with uswould materially adversely affect our business,financial condition and results of operations.Our or our securities-licensed salesrepresentatives violations of, ornon-compliance with, laws andregulations could expose us to materialliabilities.Our subsidiary broker-dealer, PFS Investments,is subject to federal and state regulation of itssecurities business, including sales practices,trade suitability, supervision of registeredrepresentatives, recordkeeping, the conductand qualification of officers and employees, therules and regulations of the MSRB and stateblue sky regulation. Our subsidiary, PSS, is aregistered transfer agent engaged in therecordkeeping business and is subject to SECregulation. Violations of laws or regulationsapplicable to the activities of PFS Investmentsor PSS or violations by a third party with whichPFS Investments or PSS contracts whichimproperly performs its task could subject us todisciplinary actions and could result in theimposition of cease and desist orders, fines orcensures, restitution to clients, disciplinaryactions, including the potential suspension orrevocation of its license by the SEC, or thesuspension or expulsion from FINRA andreputational damage, which could materiallyadversely affect our business, financialcondition and results of operations.Our Canadian dealer subsidiary, PFSLInvestments Canada Ltd. (“PFSL InvestmentsCanada”) and its sales representatives aresubject to the securities laws of the provincesand territories of Canada in which we sell ourmutual fund products and those of third partiesand to the rules of the MFDA, the selfregulatoryorganization governing mutual funddealers. PFSL Investments Canada is subject toperiodic review by both the MFDA and theprovincial and territorial securities commissionsto assess its compliance with, among otherthings, applicable capital requirements andsales practices and procedures. Theseregulators have broad administrative powers,including the power to limit or restrict theconduct of our business for failure to complywith applicable laws or regulations. Possiblesanctions that may be imposed include thesuspension of individual sales representatives,limitations on the activities in which the dealermay engage, suspension or revocation of thedealer registration, censure or fines, any ofwhich could materially adversely affect ourbusiness, financial condition and results ofoperations.If heightened standards of conduct ormore stringent licensing requirements,such as those recently proposed by theSEC and the DOL, are imposed on us orour sales representatives or sellingcompensation is reduced as a result ofnew legislation or regulations, it couldhave a material adverse effect on ourbusiness, financial condition and resultsof operations.Our sales representatives are subject to federaland state regulation as well as state licensingrequirements. PFS Investments, which isregulated as a broker-dealer, and our U.S. salesrepresentatives are currently subject to generalanti-fraud limitations under the Exchange Actand SEC rules and regulations, as well as other48 Freedom Lives Here