Officials from the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) issued some warnings about annuities on Tuesday.
FINRA views variable annuities (VAs) as complex products, Daniel Sibears, executive vice president of member regulation programs at FINRA, told attendees at the Insured Retirement Institute’s (IRI) government, legal and regulatory conference in Washington. VAs today “are more complicated with more riders and features,” and like any other complex product that’s on FINRA’s radar screen, he warned attendees that FINRA is looking closely at disclosure, suitability and yield chasing practices associated with VAs. His advice: make sure you’re doing the proper due diligence.
Indeed, Susan Nash, associate director of the SEC’s Division of Investment Management, said during her remarks at the conference that despite the fact that sales of variable annuities increased approximately 12% in 2011 from 2010, some of the large, established firms in the VA space have either left the business or curtailed offerings. “The dynamic climate of changing economics and changing participants in the business makes this a time that calls for care in the design of variable products and attention to investor protection,” she told attendees.
While living benefits have “figured prominently” in annuity sales in recent years, Nash said, “a central theme of filings” in the SEC’s Office of Insurance Products this past year has been the “paring back of living benefits, and repricing of those benefits.” What’s more, she said, the SEC staff “continues to see added restrictions on investment choices available to contract owners choosing these benefits. By limiting investments to more conservative portfolios, insurers limit their exposure to market volatility.”
However, the problem with more restrictions, she said, is that the investor “may be paying more for a less generous living benefit, and in the bargain he or she has agreed to limit the investment options, thereby restricting the potential for participation in equity market gains.”