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SEC Tells VA Insurers: Dont Pretend There Are No Problems

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SEC Tells VA Insurers: Dont Pretend There Are No Problems



For the well-being of the industry, variable annuity insurers must confront abusive sales practices and work to effect change for the benefit of investors, said a senior Securities and Exchange Commission official.

“The variable products industry cannot pretend that there are no problems,” said Paul F. Roye, director of SECs division of investment management.

“You should be as appalled as we are when you read about any instances of these abusive sales practices,” he said in remarks to the Regulatory Affairs Conference of the National Association for Variable Annuities.

Roye specifically took issue with a NAVA response to the joint report recently released by the SEC and the National Association of Securities Dealers outlining improper sales practices in the variable annuity industry. The report was accompanied by a proposed new rule creating enhanced suitability and disclosure requirements on variable products.

NAVAs response was that the report provides “no indication” of widespread abuses.

But Roye countered that the report noted that regulators have received a large number of complaints from individual investors. Many of these complaints, he noted, indicate that the customer was sold a variable product without fully understanding it or that the product was not appropriate for the customers investment objectives and liquidity needs.

Indeed, he added, there were reports of brokers making unsuitable recommendations to senior citizens and to individuals who could not afford the product without mortgaging their homes.

“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 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, but the complexity of the products dictates that salespeople must devote diligence and care to their marketing practices.

Therefore, he said, he believes the proposed new variable annuity rules are merited.

But the regulators cannot do it alone, Roye said, and for reform to be meaningful and effective, the variable products industry must do it.

“We can write rules, but we cannot change attitudes,” he said. “We can examine compliance systems, but we cannot examine the conscience of those selling your products.”

The more difficult reform task, according to Roye, belongs to the industry.

“What are you prepared to do to address the problems?” he asked. “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.”

Reproduced from National Underwriter Edition, June 18, 2004. Copyright 2004 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.