Close Close

Regulation and Compliance > Federal Regulation

Approved FINRA VA Rule Draws Reaction

Your article was successfully shared with the contacts you provided.

Attendees at two major national meetings offered their reaction to approval of a variable annuity sales practice rule by the U.S. Securities and Exchange Commission.

On Sept. 7, the SEC approved the rule proposed by the Financial Industry Regulatory Authority, Washington (see above story.)

Both attendees at the annual convention of National Association of Insurance and Financial Advisors, Falls Church, Va., and the annual meeting of the NAVA, Inc., Reston, Va., offered their thoughts on the issue.

At the NAIFA convention, Jim Eaton, agent emeritus with Prudential Financial, Newark, N.J., responded, “We [as an industry] are already doing this through self-regulation. The companies we deal with look at our business, our asset allocations, client’s age, among other factors, and decide whether a VA is suitable. This [FINRA] rule is not necessary at all. It’s probably aimed at the smaller companies that maybe don’t have the background and resources to [evaluate product suitability]. Advisors are already being trained this way [i.e., evaluate suitability]. You hardly ever see anyone not [following the new rule's provisions].”

“It’s very possible that the new FINRA rule may conflict with the NASD and SEC rules that we already have to comply with,” Robert Smith, a financial advisor with Northwestern Mutual Financial Network, Grand Rapids, Mich., offered. We’re really frustrated with inability to get simplification of the regulations to provide consistency while insuring that the consumer is protected.

“I don’t agree [FINRA's view that self-regulation has not been effective]. Our carriers’ compliance requirements with respect to suitability are mandatory. This rule is unnecessary and (a) can be redundant; (b) inconsistent [with existing regulations]; and (c) it creates a third layer of bureaucracy that advisors have to contend with. I say, let the government get its act together; tell us what to do and provide us with consistent standards so that we can work within the framework of the rules. We certainly don’t want to see the consumer injured.”

“I think the rule may be a bit much,” says Michael Castle, a financial representative with Northwestern Mutual Financial Network, Mason City, Iowa.

“My company already follows these provisions pretty closely. In two cases, I had what I thought were very appropriate VA sales but couldn’t process [because of my company's existing suitability requirements]. Right or wrong, it was frustrating as an agent because I felt I was doing the right thing for the clients. And they weren’t happy with the situation. I think it’s very hard for someone who has never had a client and who doesn’t know anything about them to make a good determination as to what is an appropriate sale based on whatever very limited information actually comes with the [VA] application.

“So I feel the [FINRA] rule is unnecessary. Again, my company [Northwestern Mutual] is already following the rule’s four requirements. The company is very proactive on compliance issues.

“The 85% of advisors who do a good job get lumped with the 15% who aren’t. At the end of the day, the rule [will not curb abusive VA sales practices]. Advisors who are inclined to do something shady will do something shady, regardless of whatever rules we have to comply with. [The rule] will just make it harder for the good agents to do business,” Castle continued.

“As a captive agent, I have to follow pretty strict compliance procedures. If I wanted to do shady things, I could go independent and find a company that doesn’t do compliance–I’m sure there are some out there–and send my VA applications to them because they’ll approve anything. If you close one hole [with a new rule] another one opens elsewhere,” he added.

During a presentation at the NAVA annual meeting, Judith Hasenauer, an attorney with Blazzard & Hasenauer, P.C., Pompano Beach, Fla., said that FINRA will publish a Regulatory Notice on its new Rule 2821 within 60 days of its recent SEC approval for adoption. Hasenauer is head of NAVA’s regulatory affairs committee.

At the time of her presentation, she had not yet viewed the final document, so said she could not comment on particulars.

The proposed rule went through 4 amendments before receiving the recent SEC approval, she said.

NAVA had asked for clarifications and examples to be included in the Notice, she said.

FINRA will issue the notice to its membership as a “Regulatory Notice,” not a NASD Notice to Members, said Hasenauer. The Regulatory Notice terminology is one of several changes FINRA is making in the wake of NASD’s recent merger with NYSE Compliance, she explained.

During the transition, the term NASD will still appear on many documents, she added. For instance, until the manuals of the merged agencies are consolidated, the NASD Manual will continue to be called the NASD Manual, and the rules will still be called NASD Rules. Whether the numbers of the rules be changed is not yet clear, she said.

“We haven’t seen the final rules yet so we have no comment on them right now,” said Mark Mackey, NAVA’s president and chief executive officer in an interview at NAVA’s annual meeting in Boston. “But in general, NAVA supports the efforts of the NASD and the SEC to pass regulations to be sure that all annuity sales are suitable.”


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.