June 26, 2012

SEC ‘Seriously Considering’ Simpler VA Prospectus

IRI survey shows that 95% of investors prefer a shorter summary prospectus

Investor demand for a variable annuity summary prospectus remains strong, according to a just-released survey by the Insured Retirement Institute (IRI).

The SEC is “seriously considering [IRI’s] suggestions for VA summary prospectus,” Susan Nash, associate director of the SEC’s Division of Investment Management, told attendees at IRI’s government, legal and regulatory conference on Tuesday.

While getting the SEC to approve a VA summary prospectus has been in the works for years, IRI announced the same day findings of a survey performed by Cogent Research for IRI, showing that 95% of investors prefer a shorter paper summary prospectus to the current documents, which can run 150 to 300 pages.

The survey also found that 59% of investors stated that having a short summary prospectus written in easy-to-understand language would have a positive impact on their decision to consider a variable annuity as part of their investment portfolio.

While the IRI research shows that investors want brief and easy-to-read VA investment materials, “at the same time, we are now seeing a decline in the number of investors who state they actually read the full prospectus,” said IRI president and CEO Cathy Weatherford, in a statement. “Rather than provide consumers with relevant investment information, the sheer length of the full prospectus has created a barrier to investor education. … We believe the time is now to allow the variable annuity summary prospectus into the marketplace.”

Other key research findings include:

  • Only 17% of individuals report reading any part of the full prospectus in 2012. This represents a 5% decline from 2011, when 22% reported doing so.
  • Among the small percentages of individuals who stated they did read the prospectus, only 7%  to 16% of the document is being read.
  • Most individuals do not refer back to the prospectus after they have purchased a variable annuity. In fact, 90% of individuals state they never or rarely use the prospectus to answer questions about their VA.
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