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VA Summary Prospectus Looks Inevitable

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Most providers of variable annuities (VAs) are now offering plan participants a summary of their investments as part of a larger prospectus, but participants would like things to be even more concise, as evidenced by a recent survey conducted by Cambridge, Massachusetts-based Cogent Research for the Insured Retirement Institute (IRI) in Washington.

According to the survey’s results, only half of the people who get a prospectus actually read it, and although most prospectuses include a summary, “it is just ‘something’ in there for most consumers,” says Danielle Holland, assistant VP at IRI. “Because there is so much regulation, there isn’t yet the possibility for a standalone summary.”

But IRI has been working on efforts for a VA summary prospectus for a while now, and in December 2008, the organization developed and submitted to the Securities and Exchange Commission (SEC) a Draft Summary Prospectus Rulemaking Petition. IRI subsequently met with the SEC on several occasions to help advance its consideration of a summary prospectus for variable annuity products, and according to Holland, the SEC is extremely interested in the concept. Last year, SEC Chairman Mary Schapiro said that there is a clear, concise need for a summary so that Main Street can understand annuity documentation, Holland says.

“We are hoping that we can do a document in 10 pages or less that consumers will be interested in and will find easy to read. Then, if they want to, they can go beyond it into the prospectus,” she says.

IRI wants to make a general summary document that all VA providers can use as a template to include enough detailed information for investors in a short and easy-to-understand format. Eighty-six percent of investors surveyed by Cogent/IRI say they want a short summary, and the three most important points they want to see in that summary are the fees associated with their VA investments, as well as the risks and the rewards of the product, Holland says.

IRI has a committee that is working exclusively on the summary template and it is hoping to send something to the SEC in 30 to 60 days, she says.