The Financial Industry Regulatory Authority is watching carefully to see how marketers go about selling variable annuities.

Susan Merrill, chief of enforcement at FINRA, Washington, delivered that message here recently at a conference organized by NAVA, Reston, Va.

Merrill said she disagrees with critics who suggest that variable annuities ought to be eliminated.

“I believe there is a place in the market for these products, to help address the longevity risk that new retirees will increasingly face,” Merrill said, according to a written version of her speech distributed by FINRA. “But I am here to send a very clear message: FINRA is watching very closely how variable annuities are being sold to the public–and for good reasons.”

Sales representatives need to make sure that each annuity that a customer buys is suitable for the customer, Merrill said.

Reps “also need to work closely with the customer to determine how important it may be to keep their investment liquid,” Merrill said.

Merrill described one large Chicago bank that was fined $225,000 by FINRA for making unsuitable sales of deferred variable annuities to 23 customers.

Most of the customers were over 70, and most exchanged fixed annuities that paid a minimum rate of 3% and were past the surrender period for variable annuities with fixed options that paid a maximum rate of 3% and had 6-year surrender periods, Merrill said.

“When firms are recommending annuities to any customer, they must act in the customers’ best interests, taking into account all relevant factors — including the customers’ ages and liquidity needs, surrender charges, product expenses and investment features,” Merrill said.

Merrill suggested that product complexity can add to the difficulty of explaining a product to purchasers.

“I’ve looked at the riders in the cases we’ve investigated,” Merrill said. “Frankly, I found it confusing to deal with all the possible bells and whistles, and it was particularly difficult to find clear written disclosure of the costs and benefits of each rider. What’s more, when we asked brokers to explain them, some could not.”

Recently proposed changes in VA communications rules would require that discussions of riders be fair and balanced, Merrill said.

“A rider’s costs and limitations must be clearly disclosed to customers,” Merrill said.