Annuity Sale Rules Proposed by NASD
The brokerage industry’s self-regulating body Monday proposed new rules to better govern brokerages’ sales of variable annuities, as the popular financial products attract more scrutiny by regulators.
The new rules would make mandatory the enforcement of previously issued annuity “best-practice” guidelines from NASD, and would increase disclosure requirements.
They also would require firms to provide their investors with risk disclosure documents in “plain English” that would clearly detail annuity liquidity issues, sales charges and other fees.
Variable annuities are tax-deferred retirement-savings products that combine mutual fund investments and insurance benefits. The contracts have mushroomed in popularity over the last decade and have become a favorite investment pitched by brokers nationwide.
But regulators have been concerned that some brokers have been selling investors annuities that are unsuitable for their specific needs, or have failed to disclose all of the fees investors may incur up front or over time.
“We believe this rule proposal represents an appropriate approach to ensuring adequate protection for investors considering or purchasing deferred variable annuities,” Robert Glauber, chairman of NASD, said in a statement.
“Because of our concerns about unsuitable recommendations and inadequate supervision, variable annuity sales have been the focus of increased NASD-wide attention for the last two years and the subject of more than 80 disciplinary actions during that time,” he said.
Lou Harvey, president of Boston-based financial research firm Dalbar Inc., said regulators had been challenged in their oversight of the annuity business because insurance firms were largely overseen by state commissions, whereas NASD regulated brokerages that sold annuities.
“It’s difficult to point out where the responsibilities of one begin and those of the other end,” Dalbar said. “They step on each other quite often.”
Last week, New York Atty. Gen. Eliot Spitzer said he was investigating insurance fees earned by the world’s three largest insurance brokerages, Marsh & McLennan Cos., Aon Corp. and Willis Group Holding Ltd.
At issue was whether the payment of fees and commissions to brokers as incentives to sell particular insurers’ products was a conflict of interest and a breach of fiduciary duty.
Some annuity firms also have been investigated for possible illegal market-timing trades in mutual funds owned through annuity contracts.
This month, regulators said they might levy fund market timing charges against insurer Conseco Inc.
