NASD proposes more rules for variable annuity sales

Goal is to protect unsophisticated buyers

April 27, 2004|By BLOOMBERG NEWS

National Association of Securities Dealers yesterday proposed a set of disclosure requirements intended to make it harder for sellers of variable annuities to take advantage of unsophisticated buyers.

The regulator, trying to make its best-practice guidelines mandatory, wants to require brokers to give customers a "plain English" document listing potential surrender charges and penalties, sales charges and other features of variable annuities. The products, mutual funds with retirement savings and insurance benefits, are ripe for abuse because of their complex fee structures and rules. The NASD has increased oversight of variable annuities sales, taking more than 80 disciplinary actions in the past two years. In January, it ordered Prudential Financial Inc. to pay $11.5 million for failing to comply with New York insurance rules that require a broker to meet with a customer twice and provide certain comparison information when an annuity contract is being replaced.

The proposed requirements would also mandate that a broker get approval from a registered principal before selling an annuity. Other requirements involve training brokers and verifying that the new rules are being followed.

The regulator plans to ask for public comment on the rules before they are approved.

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