NU Online News Service, June 9, 2004, 2:52 p.m. EDT, Washington – Variable annuity sales would come under tougher suitability and disclosure requirements under a new rule proposed by NASD, Washington.[@@]
The proposal comes following release of a joint U.S. Securities and Exchange Commission-NASD staff report on broker-dealer sales of variable products.
The report says that the SEC, NASD and other regulators receive large numbers of complaints from individual investors about variable insurance products.
The complaints indicate, the report says, that customers were sold variable products without fully understanding the products, giving rise to concerns that the products were not appropriate for the customers, given their investment objectives.
“Variable insurance products have always been subject to suitability, disclosure and other requirements that apply to all securities,” says NASD Chairman Robert Glauber.
“But given the examination findings, the large number of enforcement cases over the past couple of years and the complexity of these products, we feel we can best protect investors by establishing stronger, more specific rules that apply specifically to variable annuities,” Glauber says.
SEC Chairman William Donaldson says it is critical that broker-dealers ensure that the securities they sell are appropriate for the individual investor.
“Given the complexity of variable annuities, extra care is required,” Donaldson says.
The report cites instances of brokers making unsuitable recommendations to senior citizens and to individuals who could not afford to pay for the products without mortgaging their homes.