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VA summary prospectus model on its way

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Though no target date has been set, the SEC appears to be inching closer to formulating rules for a summary prospectus for variable annuities.

At the Investment Management Institute 2013 conference held last week in New York City, David W. Grim, deputy director, division of investment management, spoke on behalf of Norm Champ, director of the division. Grim’s remarks were later published on the SEC website.

His speech detailed a list of short- and long-term goals for the agency. On the longer-term agenda were guidelines for a summary prospectus for variable annuities (VAs), similar to what the SEC adopted several years ago for mutual funds. Grim stated that the agency “is beginning work on a rule” on a streamlined summary prospectus for VAs.

Grim noted that VAs can be challenging for consumers to comprehend due to the complexity of the benefits, costs and assortment of investment options. “These and other factors often result in disclosure that is long and difficult to understand,” he stated. “Our goal is to facilitate the communication of concise, user-friendly information to investors considering variable annuities and enhance the transparency of the benefits, risks and costs of these products.”

In a simplified summary prospectus for mutual funds, consumers can easily ascertain key information about fund investment objectives and strategies, risks and fees. It also provides a “click through” or request feature if a consumer wants more detail, Grim said.

This initiative has been under discussion since 2011. In November, Champ said the agency was working toward the release of a VA summary prospectus proposal. However, Susan Nash, associate director of the division of investment management, said there was “no timing” on when such a proposal would be released.

At a conference last month, Champ reiterated the SEC’s goal of drafting a rule on a VA summary prospectus model. Again, no timeline was given.

If a summary VA prospectus is eventually devised, consumers would welcome it. A recent study by the Insured Retirement Institute (IRI) and Cogent Research found that 95 percent of investors prefer a shorter paper summary prospectus. Currently, such documents can run 150 to 300 pages.

The IRI/Cogent survey further noted that 59 percent of investors said having a shorter, easy-to-understand prospectus would make them more open to tucking a VA in their investment portfolio.

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