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.

Innovation has also complicated the area of sales practice, as newer products can often confuse consumers and, Donohue noted, sometimes the brokers selling them as well.

“All of this innovation can be a good thing when it results in products that are better tailored to investors’ needs,” he said. “At the same time, all these additional features can have the effect of confusing investors and, quite frankly, can be difficult to understand for the selling brokers as well. Good sales practices are especially important in this environment. It is critical that you know your customer and the customer’s needs and clearly explain to the customer the product he or she is buying and its costs.”

Donohue also noted that sales to seniors have become an increasingly important issue as the number of older Americans and those reaching retirement age increases.

In addition, Donohue said the SEC is conducting a review of equity index annuities. “Our review is the result of a variety of factors, including concerns that have been raised about the marketing of equity index annuities, changes to the products and applicable state laws in the years since their introduction, and concerns articulated by some in the insurance industry regarding the regulatory uncertainty surrounding equity index annuities,” he said.

Donohue said the SEC has heard of concerns within the industry over uncertainties created by a National Association of Securities Dealers notice to members on the issue that was supposed to clarify NASD members’ authority over sales of unregistered equity indexed products.

“Whatever views any of you may have about the regulatory status of equity index annuities and the propriety of the NASD’s action, I know that we can all agree about the importance of good sales practices,” he said. “As you and we wrestle with the issues surrounding this product, I invite each of you to join with me in realizing our common goal of protecting consumers.”