Federal regulators are preparing to impose special suitability requirements on the sale of variable annuities along with requirements that broker-dealers and supervisors do more to oversee the reps who actually sell the annuities.[@@]
The U.S. Securities and Exchange Commission today published for comment a regulation specifically governing the sale of variable annuities. The proposed regulation, which was developed by the National Association of Securities Dealers, Washington, is much stronger than the current regulation.
The comment period for the proposed rule closes Aug. 11. The fact that the SEC has allowed only a 3-week comment period implies that the agency may move swiftly after the comment period ends to implement a final rule.
The SEC usually allows much longer comment periods for rules that it develops on its own, but it often provides only a short comment period for rules developed by the NASD
The NASD developed the proposed VA suitability rule in response to findings by the SEC and the NASD that supervision of variable annuity marketing by the industry was lax. Regulators found that some of the annuities sold were inappropriate investment vehicles for the purchasers, and investigators were especially critical of some sales of variable annuities to older consumers.
The NASD and the SEC released a highly restrictive proposal in April 2004.
The April 2004 draft prompted a huge outcry from the life insurance industry.
The American Council of Life Insurers, Washington, writes in an August 2004 comment letter that the regulatory changes included in the April 2004 draft “would impose unwarranted and unreasonable burdens on broker-dealers affiliated with life insurers. It dilutes the value of meaningful disclosure and overloads with redundant information.”
The ACLI suggests in the letter that the SEC and NASD jettison the proposal and start over.
The NASD came out with another proposal in December 2004, and that version is the basis for the rule the SEC proposed today.
The December 2004 version “was significantly different” from the original proposal and was much more acceptable to the industry, according to Mike DeGeorge, general counsel of the National Association for Variable Annuities, Reston, Va.
Even though the latest version is based on the December 2004 proposal, NAVA and other industry groups are likely to seek further changes, DeGeorge said.
“This is more acceptable than the original proposal, but we are still reviewing the current version and we will still file comments,” DeGeorge said.
The current version would require broker-dealers to:
- Establish specific, “reasonable” guidelines that supervisors would have to use to ensure that sales personnel are “appropriately supervised.”
- Develop and document specific training policies or programs to be used by supervisors, to ensure that each transaction is suitable for the customer and that the supervisor understands “the material features of deferred variable annuities.
A copy of the proposed rule is on the Web at http://a257.g.akamaitech.net/7/257/2422/01jan20051800/edocket.access.gpo.gov/2005/pdf/E5-3903.pdf