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June 10, 2004 at 08:00 PM
By
Washington
Variable annuity sales would come under tougher suitability and disclosure requirements under a new rule proposed by the National Association of Securities Dealers.
The proposal comes following release of a joint Securities and Exchange Commission-NASD staff report on broker-dealer sales of variable products.
The report says the SEC, NASD and other regulators receive large numbers of complaints from individual investors over variable insurance products.
The complaints indicate, the report says, that customers were sold a variable product without fully understanding it, giving rise to concerns that the product was not appropriate for them, 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 R. 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, he says.
SEC Chairman William H. 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, he says.
Frank Keating, president of the American Council of Life Insurers, Washington, says life insurers welcome the scrutiny of variable product sales and support full compliance with comprehensive supervision and suitability standards. But he adds that the life insurance industry encourages equally thorough examinations and reports by the NASD and SEC regarding other financial products.
In that way, Keating says, regulatory resources will be allocated fully and equitably to protect consumers and prevent abuse in the marketplace.
Keating notes that the report on variable products does not quantify the incidence of broker-dealer deficiencies.
If the report had provided that information, he says, broker-dealers could better fulfill the risk-based approach to compliance encouraged by the NASD and SEC that focuses resources on the most frequent sources of wrongdoing.
