The Financial Industry Regulatory Authority has published the text of a rule that will govern broker-dealers’ compliance and supervisory responsibilities for deferred variable annuities.
The U.S. Securities and Exchange Commission approved the rule, FINRA Rule 2821 Governing Deferred Variable Annuity Transactions, in September.
The rule is scheduled to take effect May 5, 2008.
FINRA also has released a batch of guidance to help FINRA members and others interpret the new rule.
One section of the new rule covers FINRA principal review and approval obligations for all deferred VA transactions, and others deal with topics such as firm supervisory procedures and training programs.
Under the new rules, when a registered rep is recommending a deferred annuity transaction, the rep must “have a reasonable basis to believe that the customer would benefit from certain features of deferred variable annuities, such as tax-deferred growth, annuitization or death or living benefits,” FINRA officials write in a summary of the new rule.
The rep also must “make a reasonable effort to obtain and consider various types of customer-specific information, including age, income, financial situation and needs, investment experience and objectives, intended use of the deferred variable annuity, investment time horizon, existing assets, liquidity needs, liquid net worth, risk tolerance and tax status,” officials write.
A copy of the notice is available ‘>Document Link
A copy of a news release summarizing the notice is available