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Regulation and Compliance > Federal Regulation > FINRA

FINRA Sets Sights on Registered Index-Linked Annuities

By Melanie Waddell

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FINRA is eying registered index-linked annuities as sales of the products skyrocket.

Related: SEC Updates Indexed Annuity Investor Bulletin

During a virtual panel discussion at the Life Insurance Products 2020 conference, held by the American Law Institute, Brian Rubin, partner at Eversheds Sutherland, questioned FINRA CEO Robert Cook regarding the broker-dealer regulator’s exams of firms’ use and marketing of RILAs.

As Rubin explained, RILAs are annuities with floors and buffers that use a stock market index to determine gains and losses.

“We’ve also observed the increase in the sales [of RILAs] over the last four or five years, and a significant jump for the first half of 2020 compared to first half of 2019,” along the order of 20% or 22%, Cook said Friday.

Similar to other structured products, Cook said FINRA’s focus on RILAs are threefold:

Ensure clear disclosure. “Customers need to understand the complexity of a structured product, and the registered rep needs to understand and disclose the inner workings of the product,” Cook said.

Over-concentration and lack of liquidity. “Where surrender periods could be anywhere from five to 12 years, that could be an issue for certain types of investors with limited liquidity sources,” Cook stated.

Understand the product’s return on investment. The customer needs to understand “that the products may offer a lower return due to these caps; there’s a trade-off.”

Consumers need to know “that while there’s a guarantee about the loss of investment, the potential return might be lower.” Also, “if a customer is being moved into these products from other annuities with existing potentially strong income benefits and making sure the customers have relevant information there.”

— Related on ThinkAdvisor:

Melanie Waddell

@Think_MelanieW

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