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FINRA Head Sees Holes in VA Sales Documentation

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WASHINGTON BUREAU — Financial Industry Regulatory Agency examiners say they are pleased with the variable annuity (VA) industry’s response to new sales requirements but are still watching for abusive switches and costly surrender fees.

The overall size of the enforcement caseload has been small, and that suggests that the new FINRA VA rule, which sets new training standards and requires principal approval of sales, has had the desired effect of deterring inappropriate sales of VA products, according to Richard Ketchum, the chairman of FINRA, Washington.

“We are, however, seeing areas where firms still need to improve,” Ketchum said.

Ketchum summarized FINRA examiners’ views here earlier this week at a conference organized by the Insured Retirement Institute, Washington.

Ketchum said one issue FINRA examiners are finding is a failure to obtain–or failure to document–basic customer information such as age, annual income, financial needs and investment objectives.

The information is required by the VA regulation and is necessary for suitability analysis, Ketchum said.

FINRA examiners are finding inadequate policies and procedures and inadequate supervisory reviews and approvals, and some firms have failed to develop or properly implement training programs under the new VA rule, Ketchum said.

“While these findings may seem like minor traffic violations on the surface, variable annuities are very complex and sophisticated products, and firms need to have a level of supervisory control in place to ensure they’re being sold properly,” Ketchum said.

The new VA rule requirements “were considered and implemented over an extended period of time, were anticipated by the industry, and you all had time to prepare to ensure compliance with the rule,” Ketchum said.

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