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October 1, 2007
Volume 5, No. 15
SEC Approves FINRA Rule on Sales of Deferred Variable AnnuitiesThe Securities and Exchange Commission (SEC) has approved a new rule proposed by the Financial Industry Regulatory Authority (FINRA, formerly the NASD) that addresses sales practices and supervisory requirements for the sale of deferred variable annuities (VAs). The proposed rule had been in the works for almost three years and was amended four times in response to public and industry comments before finally gaining SEC approval on September 7, 2007. Rule 2821 has four main elements. First, it imposes a suitability obligation that is specifically applicable to the purchase or exchange of deferred VAs. Next, it establishes standards requiring a principal of the broker-dealer to review the transaction and approve it before the VA is processed by the issuing insurance company. Third, broker-dealers will have to set up supervisory procedures designed to ensure compliance with the rule. Finally, broker-dealers will have to establish training programs for their registered reps that focus on the features of deferred VAs and the requirements of the rule. In response to comments submitted by NAIFA, our members, and our industry colleagues, the final rule does represent a substantial improvement over the rule as originally proposed. A requirement to provide a separate risk disclosure document to the customer was dropped, and the time period for obtaining a supervisor's review and approval for the transaction was extended from two to seven days. NAIFA strongly opposes inappropriate sales of insurance and annuity products and believes that persons proven to have engaged in these practices should be subject to appropriate penalties under the law. NAIFA supports the adoption in the states of the NAIC's Suitability in Annuity Transactions Model Regulation and Annuity Disclosure Model Regulation. In addition, we support comprehensive and easy-to-understand disclosure of all pertinent facts about annuities and other insurance and financial products. However, NAIFA did oppose the adoption of Rule 2821 because it duplicates or exceeds current FINRA supervision and suitability requirements that are already in place. Existing NASD rules already contain suitability and supervisory review requirements that apply to all sales of securities, including variable annuities. If regulators really want to protect consumers, NAIFA believes the answer is to appropriately enforce the existing rules rather than adopt new rules.Back to October 1, 2007, NAIFA Frontline |
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| NAIFA's Law and Government Relations Department |
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