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Life Health > Annuities > Variable Annuities

FINRA Proposes Illustration Changes

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The Financial Industry Regulatory Authority has drafted rules that could affect marketers of variable annuity and variable life products.

FINRA, Washington, wants to streamline existing rules and staff interpretations and also to create new rules for how member firms should handle variable products, illustrations of hypothetical performance and investment analysis tools, officials say.

The draft, FINRA Regulatory Notice 08-39, would update NASD Interpretive Material 2210-2, “Communications with the Public About Variable Life Insurance and Variable Annuities,” a batch of guidance first issued in 1993.

Two sections in the draft that concern communications about product liquidity, guarantee claims and riders would:

- Prohibit communications from implying that a variable product is a mutual fund.

- Prohibit communications from implying that variable products are short-term, liquid investments.

- Create, for the first time, specific provisions regarding variable product riders.

- Require discussions of a guarantee to disclose all material applicable limitations or qualifications affecting the guarantee.

- Prohibit member firms from exaggerating the benefits of a guarantee, or an insurance company’s financial strength or credit rating.

A Qualified Plans section of the notice would require member firms to make sure that consumers understand that they can get tax benefits through a 401(k) plan or an through individual retirement account as well as through a variable product, and that the variable product would not let them defer additional income.

A Variable Life Insurance Policy Performance section would set rules for communications presenting variable life policy performance data and illustrations of how the policy might perform in the future.

The proposal “would require communications that present variable life insurance policy performance to urge investors to obtain a personalized hypothetical illustration,” FINRA officials write in the variable products regulatory notice.

Comments on the draft are due Sept. 30.


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