SEC and FINRA Alert Investors About Annuity Risks

Last Tuesday, officials from the SEC and FINRA issued new warnings to the
variable annuity marketplace. During a URI 2012 Government, Legal &
Regulatory Conference last week, Susan Nash, Associate Director of the
Division of Investment Management at the SEC explained that despite sales of
variable annuities increasing approximately 12% in 2011 from 2010, some
established firms in the VA space have either left the business or curtailed
offerings. Nash also commented on other changes taking place in the variable
annuity market that include reductions in investment choices and living
benefits. “It is essential that offering materials clearly highlight the
costs and limitations associated with living benefits, so that investors can
make an informed decision, Nash explained.

Fortunately, the SEC is reportedly considering a new disclosure framework
for VAs to improve understandability of certain contracts. FINRA is looking
closely at disclosure, suitability and yield chasing practices associated
with VAs. “The dynamic climate of changing economics and changing
participants in the business make this a time that calls for care in design
of variable products and attention to investor protection,” Nash explained.

As investors seek low-risk investments to guarantee their retirement
savings, VAs may grow more popular and even more complex.  Daniel Sibears,
Executive Vice President of member regulation programs at FINRA, urged
investors to conduct  proper due diligence when making investments. VAs
today “are more complicated with more riders and features,” he explained.

Author: Dexter Johnson

The author is a an attorney who for the past 14 years has concentrated his practice in representing, successfully, investment advisers, broker-dealers, corporations and individuals who are subject to SEC, FINRA, State or other regulations and who may be the subject of regulatory examination, review or investigation. He formerly worked at the SEC. His regulatory and litigation experience has encompassed virtually every type of securities issue in the industry. He has also negotiated favorable outcomes in many of these matters for his clients.