SEC Eyeing Effects Of Heightened Competitiveness In VA Market
The Securities and Exchange Commission has some concerns about variable annuities, not the least of which is the impact of the industrys heightened competitiveness on sales and marketing.
That became clear here when Paul F. Roye, director of the SECs Division of Investment Management, offered extensive personal remarks before the annual Regulatory Affairs Conference of National Association for Variable Annuities, Reston, Va.
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Many firms have been “squeezed” by the markets recent volatility, with the result that sales have leveled and assets have declined, Roye observed.
This has heightened competition in an already competitive industry, he said, noting that 65 insurers now offer over 500 VAs (as compared to 15 years ago when 25 companies offered just 45 products).
But “competitive pressure to bring new products to market quickly does not help with the careful and thoughtful preparation of clear and understandable disclosure documents and compliance planning,” he went on.
In fact, he said, intense competition sometimes yields “aggressive” marketing and advertising for both new and existing products.
It can also spur a search to find ways to increase broker compensation “to generate sales, through commission rate promotions and other means,” he said.
Reports have even indicated that, to gain market share, some companies are paying out more in commissions and other incentives than they can expect to recover from product fees, the official added.
Further, “decreasing revenues often result in cost-cutting measures, sometimes at the expense of a firms legal compliance program.”