NU Online News Service, June 15, 2004, 7:44 p.m. EDT, Washington – For the well-being of the industry, variable annuity insurers must confront abusive sales practices.[@@]
Paul Roye, director of the investment management division at the U.S. Securities and Exchange Commission, made that suggestion in remarks to the Regulatory Affairs Conference of the National Association for Variable Annuities, Reston, Va.
“The variable products industry cannot pretend that there are no problems,” Roye said. “You should be as appalled as we are when you read about any instances of these abusive sales practices.”
Roye specifically took issue with a NAVA response to a report recently released by the SEC and NASD, Washington, that described improper sales practices in the variable annuity industry.
The report was accompanied by a proposed rule that would update variable product suitability and disclosure requirements.
NAVA said the report provided no indication of widespread abuses.
But Roye said the authors of the report noted that regulators have received a large number of complaints from individual investors. Many of these complaints indicate that the customer was sold a variable product without fully understanding it or that the product was not appropriate for the customer’s investment objectives and liquidity needs, Roye said.
There also were reports of brokers making unsuitable recommendations to senior citizens and to individuals who could not afford the product without mortgaging their homes, Roye added.
“These are the kinds of abuses that appall investors, alarm regulators and should spark outrage throughout the industry,” Roye said.
He said he knows that many in the industry believe that variable products should not be singled out for special suitability and sales practice standards.
Part of that concern, Roye said, likely reflects a concern that additional requirements will chill the sale of variable products. However, he said, the complexity of the products dictates that salesmen must devote diligence and care to variable product marketing practices.
Therefore, Roye said, he believes the proposed new variable annuity rules are merited.
But Roye said the more difficult reform task belongs to the industry.
“We can write rules, but we cannot change attitudes,” Roye said. “We can examine compliance systems, but we cannot examine the conscience of those selling your products. What are you prepared to do to address the problems? What will you demand of the brokers that sell your products? Will you refuse to do business with firms when there is continuing evidence of your products being improperly sold?”
Roye said he hopes the industry can find appropriate answers to these questions.
“I submit that when your products are being missold by brokers and insurance salesmen, it is the problem of the insurance company sponsors of these products as well,” Roye said.