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Life Health > Annuities > Variable Annuities

SEC Extends Comment Period on VA Summary Prospectus Plan

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SEC headquarters SEC headquarters in Washington. (Photo: Diego M. Radzinschi/ALM)

The Securities and Exchange Commission said Thursday that it is extending by one month the comment period for its proposed rulemaking on a variable annuity summary prospectus.

The original comment period expired Friday but has been extended to March 15.

The plan, which amends the rules and forms to help investors make informed investment decisions regarding variable annuity and variable life insurance contracts, was published in the Federal Register on Nov. 30, 2018.

Dalia Blass, director of the SEC’s Investment Management Division, said in November that the VA summary prospectus proposal, which the securities regulator voted to issue for public comment on Oct. 31, is intended to reform the disclosure framework for variable contracts.

“What started out as a process to propose a summary prospectus became so much more,” Blass said then. The proposal offers layered disclosure to insurance products, updates registration forms, takes a fresh look at addressing discontinued contracts and leverages technology, she explained.

Blass said a “core feature” of the proposal is the layered disclosure framework. “It would permit issuers to provide investors with a summary prospectus for the variable contracts while making the full prospectus and related materials available online,” she explained.

The process is similar to the layered disclosure that mutual funds have had since 2009.

Dennis Kelleher, president and CEO of Better Markets, a consumer advocacy group that supports increasing financial regulation, told the SEC on Thursday in a comment letter that from an investor perspective, those who buy variable contracts “are exclusively retail and often older and of modest investable means.”

The average age of investors at first purchase of a variable contract is 51, Kelleher stated. “It is shocking and, we believe, telling that 60% of annuity investor households have incomes (note, NOT investable assets) under $75,000 and 35% are below $50,000.”

From investors’ perspective, he continued, “the key questions are: Is the summary disclosure a meaningful improvement over the status quo? Or, will it become yet another handout that will be long, confusing, and easily overwhelmed by the strong incentives of the broker who is eager to sell a variable contract that will generate thousands of dollars in commissions and residual income for herself while the investor is left with a financial product that is potentially unsuitable (or worse, dangerous for his financial well-being).”

Bottom line, according to Kelleher: “The commission has an opportunity to offer bold and effective solutions that would help retail investors make informed investment decisions relating to two of the most complex and potentially harmful investment products: variable life insurance and variable annuities contracts. Instead of offering untested and ineffective new disclosures, the commission must first thoroughly test, and only then propose for comment new summary disclosures.”

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