Several people have sent me a copy of a Jan. 6, 2005, letter which they say they received from the National Association of Securities Dealers. This letter asked NASD member firms to send in communications regarding “equity indexed annuities.” (Note: The letter is not posted on the NASD Web site.)
The request included sending NASD a list of the firms associated persons who have told the firm they are offering index annuities. Although some of the requests in the letter are directly supported by NASD rules, others could be considered a bit of a stretch.
The request for communications falls under NASD Rule 3030. This rule requires associated persons (registered representatives) of NASD member firms (broker-dealers, or B-Ds) to provide prompt written notice to their B-D of outside business activities.
The term “outside business activities” is not defined. It would appear, however, that registered representatives must disclose any fixed index annuity, life insurance, long term care, or other product wherein the rep acts as an insurance agent outside of the B-D. If that is so, this would include index annuities.
The letter also asked for marketing and product specific index annuity materials under the auspices of NASD Rule 2210. Unless NASD is talking about registered index annuities, this request is a bit of a puzzler because the language of Rule 2210 talks about mutual funds, variable contracts, direct participation programs, and never mentions fixed annuities.
NASD also asked for B-D procedures in determining whether the index annuities are “marketed primarily as investments.”
Amazingly, after spending most of an afternoon going through the Web sites of the NASD and also the Securities and Exchange Commission, I could not find a definition for “marketed primarily as investments.” Perhaps the B-D could ask NASD for its definition before replying to its recent request.
The question of whether or not some financial products are securities is open to interpretation. However, index annuities are specifically excluded from NASD jurisdiction because they meet SEC safe harbor rules to be classified as fixed annuities.