Former SEC Chief To NAVA: More Meaningful Disclosure
Its time for the variable annuity community “to take the steps necessary to implement fuller and more meaningful disclosure.”
With those words, Arthur Levitt, former chairman of the Securities and Exchange Commission urged members of the National Association for Variable Annuities to “adopt a clear-cut, simple-to-understand fee statement on any variable product.”
The call came during an address Levitt gave here at NAVAs annual meeting. It was an address in which he urged the financial services industry to take several proactive steps to ensure the strength and security of the capital markets during this slowing economy and era of terrorist threat.
One of those steps he said is to “not falter in our efforts to make our markets as transparent and open as possible.”
This means ensuring “full and fair disclosure in all parts of the securities industry,” he continued, forwarding a message he propounded throughout his SEC tenure from July 1993 to February 2001.
In applying his disclosure message to VAs, Levitt did allow that VAs offer “an attractive savings vehicle for some investors.”
But he also contended “many of the touted benefits of VAs are modest for many investors,” and said some people believe the VA industry has “oversold the benefits and obscured the costs of VAsburying fees in hundreds of pages of documents.”
It is to counter that criticism that he said he is urging NAVA members to adopt simple-to-understand VA statements. These “should show, in simple terms, the annualized cost of the product, along with the accumulated cost, if premiums were paid over a lifetime,” he said.
Doing so will become especially important in the months ahead, he maintained, as annuities may take center stage in discussions on Social Security reform.
(Many reform proposals call for Social Security individual accounts to mandate transforming individual account balances into life annuities upon retirement, to ensure retirees dont outlive their savings, he noted.)
The annuity industry “will play an important role” in explaining the trade-offs involved in annuitization, he predicted. “And, no matter what policy course is chosen, this frank discussion will bear fruit–for it, along with transparent disclosure of fees, is essential to ensuring that investors understand the costs, along with the benefits of variable annuities.”
Other proactive steps Levitt favors include:
–The financial markets need to examine their own security, especially the availability of backup or alternative trading sites.
–The SEC needs enough resources to back up its own documents sufficiently. Right now, it is “starved for resources,” he contended.
Maintaining the integrity of capital markets is more important now than ever, insisted Levitt, who now serves on several corporate boards, including Bloomberg L.P., Neuberger Berman, and CCBN (Corporate Communications Broadcast Network).
“Today, our markets play an unprecedented role in the overall health of our economy,” he explained. This is primarily through the so-called “wealth effect,” he continued, referring to the tendency of people to spend or restrain spending, depending on whether markets are rising or falling.
“With more Americans than ever in the stock market, some fear that the wealth effect will be particularly severe in a market downturn.”
He said he believes “policymakers in Washington need to focus on the fundamentals of the economyspecifically, constructing an effective short-term stimulus without sacrificing fiscal discipline and Americas long-term economic health.”
The former SEC chief praised NAVA for going ahead with its annual meeting, even though many other businesses and industry groups cancelled hundreds of meetings and conventions in the wake of the Sept. 11 terrorist attacks. He thanked the association for its “resolve and dedication” to keep going with business as usual.
Referencing President Bushs remarks to the nation, Levitt said, “We have to be prepared for a long struggle.”
This will entail both offensive and defensive measures, he indicated. “In addition, we need to keep our marketsa key part of our economic strengthopen and secure. We need to continue with policies that maintain a high level of systemic confidence. And we need to nurture the fundamentals that power our economy with sound, reasoned policy decisions.”
Reproduced from National Underwriter Life & Health/Financial Services Edition, October 22, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.