Disclosure and sales practices for variable annuities are concerns for the Securities and Exchange Commission, said Andrew J. Donohue, director of the SEC’s Investment Management Division, in a speech last week.
Speaking at an American Law Institute- American Bar Association conference, Donohue said the ultimate goal for the SEC when it comes to disclosure is for consumers to be given user-friendly, easily understood disclosure forms. However, this goal is especially complex for variable products, he noted, and is made all the more so by the industry’s efforts to create new products.
“The unfortunate consequence of product innovation, which can have many benefits for consumers, has been that many potential investors confront an information overload,” Donohue said. Even with access to all the data about a variable product, either in online form or on paper, he said the average investor “will have a difficult time figuring out what the critical information is, much less finding and digesting it in a timely manner, and will have an even harder time comparing it against similar disclosures for other insurance or financial products.”
The SEC, he said, is interested in finding a way to put the focus on information that is key to investment decisions, perhaps through a shortened form containing only the key information.
The commission held a roundtable on the issue earlier this year that included representatives for investor advocates, industry, research organizations, academia and self-regulatory organizations.
“The consensus of representatives of these many different viewpoints appears to be that a short-form disclosure document could be more efficient than the current prospectus as a tool for getting key information into the hands of investors–and by that, I mean the critical information they want and need to make an informed investment decision,” Donohue said.
The commission is also looking to continue and expand its XBRL pilot program, which is designed to make information in a financial statement more easily accessed and analyzed online.