SIA Requests Changes In Proposed Variable Annuity Rules

The Securities Industry Association is seeking to change two provisions of the NASD’s proposed variable annuity rules “that are vague and do not meaningfully contribute to the overall objective of investor protection.

The Securities Industry Association is seeking to change two provisions of the NASD‘s proposed variable annuity rules “that are vague and do not meaningfully contribute to the overall objective of investor protection.” The industry group, in a comment letter to the Securities and Exchange Commission, wants to extend the time that a firm has to review and approval transactions of the controversial hybrid insurance and securities product from two days to a more indefinite “promptly.” The SIA doesn’t think two days is enough time for supervisors to perform such reviews and approvals. “We are concerned that by applying a prescribed time period to these reviews and approvals, a number of transactions will unnecessarily be cancelled in order to meet this regulatory deadline,” the SIA’s general counsel, Ira Hammerman, wrote in last week’s letter.

VAs--which have been around for decades--have come under increasing pressure from regulators who fear that the hybrid insurance and securities product is being sold unscrupulously to seniors. The high fees and penalties for early withdrawal can make these products unsuitable for some retirees, industry experts said. “Previously, regulators focused on penny stocks, hedge fund and derivatives, but the fact is most of where we will see the growth in fraud will be in those products designed and tailored for aging baby boomers and their parents,” said Bill Singer, securities lawyer with Gusrae, Kaplan Bruno & Nusbaum.

The other change being suggested regards language. The rule proposal requires registered representatives to have a reasonable basis that customers would benefit from the features of a VA and the SIA wants the ‘would’ changed to ‘could.’ The SIA “believes this language is promissory in nature and implies a level of certainty and guarantee upon the suitability determination by a registered rep that is not attainable,” the letter concludes.

The NASD and SEC did a joint review of industry practices in the sale of VAs in 2004. Proposed rules were submitted thereafter. Another amendment to the rules was filed this year and the SEC is currently accepting comment letters. It could not be discerned from the regulator’s Web site when the comment letter filing date expires. Hammerman did not return a call for comment.