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Regulation and Compliance > Federal Regulation > SEC

Carrier Group Continues To Fight NASD VA Proposal (Corrected)

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The American Council of Life Insurers has repeated its call for the U.S. Securities and Exchange Commission to scrap a proposed National Association of Securities Dealers regulation that would tighten variable annuity sales standards.[@@]

The NASD sales suitability proposal, NASD Rule 2821, “has become a lightning rod for broad industry concern,” Carl Wilkerson, an ACLI chief counsel, writes in a letter to the SEC.

The ACLI, Washington, is asking the SEC to keep the existing VA sales suitability rules.

The current NASD proposal “does not adequately demonstrate a need for new regulations based on objective empirical data,” Wilkerson writes.

Although the SEC is complaining about unsuitable VA sales, complaints about unsuitable VA sales account for just 0.32% of the NASD’s total disciplinary actions on average over the past 5 years, Wilkerson writes.

Similarly, the SEC logged 14 times as many broker-dealer complaints about equity securities as it did for VAs, and 4.5 as many mutual fund complaints compared with complaints about VAs for the 12 months ended May 31, 2004, Wilkerson writes.

The NASD’s proposed rule requires broker-dealers and salespersons “to have a reasonable basis to believe” that VAs are a suitable investment vehicle for a customer through a 5-point evaluation process.

The proposed rule also requires that:

- The salesperson makes “reasonable efforts” to obtain information concerning customers’ age, annual income, financial situation and needs, investment experience, investment objectives, intended use of the VA, investment time horizon, existing investment and insurance holdings, liquidity needs, liquidity net worth, risk tolerance, tax status “and other information used by the salesperson in making recommendations.”

- The salesperson’s supervisor reviews the deal through the lens of several investment and cost criteria. The supervisor would have to acknowledge that the deal was evaluated in writing, and requires broker-dealers to create and implement certain training programs designed to ensure that salespeople and supervisors understand the “material features of deferred VAs.

CORRECTION: Due to an editing error, an earlier version of this article implied that the ACLI was contemplating legal action. The ACLI says it has not broached the idea of litigation and is fully dedicated to improving NASD’s pending suitability and supervision proposal.


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