NASD Turning Up The Pressure On VA Suitability
By Jeffrey S. Puretz and Nicole Griffin
A recent enforcement action shows that the National Association of Securities Dealers has turned up the pressure on suitability determinations by broker-dealers in the sale of variable contracts. This action marks the 10th major action that the NASD has brought against broker-dealers respecting the sale of VAs in the last three years.
This most recent action marks a shift in the regulators focus. In most of the prior actions, the NASD found fault with supervisory procedures–finding them inadequate–and with the documentation compiled on specific sales–literally finding the files incomplete.
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In this most recent action announced in December, the NASD has singled out a particular type of sale–those to qualified plans–and started to set forth particular ways in which the product must meet a clients needs and specific information that must be analyzed and presented to the client.
The scrutiny given by the regulator on these sales of annuities is far deeper than that given to sales of mutual funds or other packaged products, and shows a deep skepticism on the part of the regulator on annuities in general.
The December action was accompanied by a warning from Mary Schapiro, president of Regulatory Policy and Oversight, that the NASD will continue to focus on variable annuity sales practices to ensure that “customers receive important disclosures concerning these complex products and that they are sold only to customers for whom they are suitable.”
The action was against a broker-dealer affiliated with a major insurer. The firm did not admit the NASDs allegations but accepted the NASDs findings and consented to the imposition of a censure and a fine of $350,000.