New suitability guidance for deferred variable annuities requires registered representatives to make a “reasonable effort” to obtain the information need to gauge the suitability of the proposed transaction and to ensure the transaction will benefit the consumer.
The new guidance was published as Regulatory Notice 07-53 by the Financial Industry Regulatory Authority and is the culmination of a multi-year effort to set the process under which such transactions should take place.
Scheduled to take effect on May 5, 2008, Rule 2821, also requires registered reps to ensure that the consumer is aware of the features of the product involved. The Securities and Exchange Commission, which must give its approval to new rules proposed by FINRA, announced that it had done so for Rule 2821 in September.
The new rule also establishes the procedure for principal review of proposed deferred variable annuity transactions, mandating that such reviews take place prior to an application being submitted to the insurer, but within 7 business days of the customer signing that application. It also requires firms to establish and maintain written supervisory procedures to ensure compliance, and to create a training program for registered principals who would be involved in such transactions.
Michael DeGeorge, general counsel for the National Association for Variable Annuities, said the rule “has been around in different forms” for roughly 3 years prior to the adoption by FINRA and had been subject to a number of changes as regulators at FINRA and its predecessor, the National Association of Securities Dealers, worked out problems in the rule identified by industry participants.