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

The U.S. Securities and Exchange Commission has just given the retirement income planning community a gift that, in easier times, would have led to much drinking of champagne: the final regulations for a new summary prospectus for variable life insurance contracts and variable annuity contracts.

The new summary prospectuses are supposed to look like mutual fund summary prospectuses.

Life insurers, and advisors who help clients buy variable products, have been hoping for years that access to a consumer-friendly explanatory document could increase consumers’ understanding of variable products; increase advisors’ own understanding of the products; and, possibly, increase sales, simply by making the product disclosures look less terrifying.

Resources

  • A copy of the final regulation, and links to copies of the associated forms, are available here.
  • An article about comments on the summary prospectus project is available here.
  • A news article about the release of the final regulations is available here.

Both the Insured Retirement Institute and the American Council of Life Insurers put out statements welcoming the arrival of the new regulations.

“This is a major leap forward in the ability to provide consumers with information they need to make educated investment decisions about financial products that can be essential to ensure a secure and dignified retirement,” Jason Berkowitz, the IRI chief legal and regulatory affairs officer, said.

Carl Wilkerson, the ACLI’s chief counsel for insurers, called the new summary prospectus “truly a win, win, win.”

“It is a win for consumers because it will help them make informed purchasing decisions,” Wilkerson said. “It is a win for life insurers because it improves disclosure and reduces printing, postage, storage and transportation costs. And it is a win for the environment because it will significantly lower the carbon footprint through electronic delivery and less paper waste.”

Here are seven facts about the new regulations.

1. Effective Date

The regulations are set to take effect July 20.

2. The People

The contact people listed in the introduction, in the full regulatory packet, are Daniel Chang, Pamela Ellis, Bradley Gude, James Maclean, Amy Miller, Michael Pawluk, Harry Eisenstein and Michael Kosoff.

3. The Length

Making the guides to the variable products shorter and simpler is not simple: The regulatory packet takes up 713 pages.

The sample instructions for the N-4 variable annuity registration form takes up 47 pages, and the sample instructions for the N-6 variable life policy registration form takes up 48 pages.

4. Gotchas

As much as IRI likes the idea of the new summary prospectus, Berkowitz noted in his statement that IRI is still going through the final regulations to see what it thinks.

5. The Key Information

Here are the major categories of information in the list of “Important Information You Should Consider About the [Contract].”:

  • Fees and expenses
  • Risks
  • Restrictions
  • Taxes
  • Conflicts of interest

6. Financial Professional Compensation

The final regulations put “Investment professional compensation” in the “conflicts of interest” section.

Here are the instructions given for that item:

State that some investment professionals may receive compensation for selling the contract to investors, and briefly describe the basis upon which such compensation is typically paid (e.g., commissions, revenue sharing, compensation from affiliates and third parties). State that these investment professionals may have a financial incentive to offer or recommend the contract over another investment.

7. Debate Over the Financial Professional Compensation Item

The SEC notes in the introduction to the final regulations that some commenters on the draft version wanted to expand the scope of the conflicts of interest section, and that other commenters wanted to narrow it.

“We are adopting this line-item as proposed,” SEC officials write. “The variable contract summary prospectus conflict of interest disclosures were modeled on the parallel requirement for mutual fund summary prospectuses. Based on our experience with the mutual fund summary prospectus regime we believe the required disclosure strikes the right balance of alerting investors to certain conflicts in a summary document, while accommodating additional detail that may be described in the statutory prospectus.”

— Read 5 IRI Priorities That Could Help Your Annuity Saleson ThinkAdvisor.

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