Members of the National Association for Variable Annuities need to take the consumer protection provision in the group’s mission statement seriously.
Annette Nazareth, a commissioner who serves on the U.S. Securities and Exchange Commission, delivered that message in Washington Monday at a compliance conference organized by NAVA, Reston, Va.
Nazareth noted that NAVA’s own mission statement states that the group exists in part to “protect consumers by encouraging adherence to the highest ethical standards by insurers,” according to a written version of her remarks.
Nazareth also praised NAVA efforts to protect consumers by trying to come up with a simplified disclosure system and by coming up with a list of 10 questions that older consumers should ask when considering the purchase of variable annuities.
But Nazareth also emphasized that she and the SEC have taken a keen interest in reports of problems with VA sales.
Officials at the National Association of Securities Dealers, Washington, have made a point in recent months of complaining about what they say are complicated equity indexed annuity contracts and a fragmented system for regulating annuities.
Nazareth told NAVA conference participants that she was not at the conference to opine on the legal issues concerning which agency should regulate EIAs.
“Instead,” she said, “I am here to tell you that I believe that the individuals purchasing these products should be protected, regardless of how the jurisdictional lines are drawn…. Don’t we all have an interest in ensuring that purchasers of financial products understand what they are getting and that the products are appropriate for their needs?”
Variable annuities provide investors with access to many underlying investments and optional features, but “the myriad features and fee structures inherent in some products have resulted in confusion for both the representatives who sell them and the investors who purchase them,” Nazareth said.
Investors need to understand VA fees and other charges, and those who are putting VA contracts in individual retirement accounts need to understand that use of the contracts will not give them additional tax benefits, Nazareth said.
“I would urge you to treat sales to seniors with particular care,” Nazareth said.
The SEC already is examining firms that use free lunch seminar programs in Florida to sell variable annuities and other products to older consumers, Nazareth said.
“These exams will be expanded to include other states with a concentration of seniors,” Nazareth said.