Variable annuity sales raising concern: Finra official

Product remains at top of investor complaint list and the self-regulator wants to ensure investors understand what they're getting into

Jun 30, 2014 @ 2:12 pm

By Mark Schoeff Jr.

finra, variable annuity, annuities, sales, suitability
+ Zoom

A Finra official on Monday expressed concern over the sale of variable annuities, as investors look for higher returns and the products become more complex.

Carlo di Florio, chief risk officer and head of strategy at the Financial Industry Regulatory Authority Inc., said variable annuities are taking on features that resemble complex structured products. For instance, they have caps that limit how high returns can go during market rallies and buffers that put a floor on how far they can fall during market slumps.

(Related: New annuities offer exposure to equities and downside protection)

The broker-dealer self-regulator wants to ensure investors understand what they're getting into when they buy these vehicles.

“That's something we're very focused on,” Mr. Di Florio said at the Insured Retirement Institute Government, Legal and Regulatory Conference in Washington. “Variable annuities remain one of the products that's always at the top of the [investor] complaint list.”

Investors have frustrations about disclosures, sales practices and surrender rules with variable annuities, according to Mr. Di Florio.

During a question-and-answer session, a conference participant pressed Mr. Di Florio on why Finra does not provide a specific rule on how much variable-annuity weight is too much in a portfolio.

“The thing that keeps us from issuing very prescriptive guidance is that when we get into these firms, it really is [a] facts-and-circumstances [review],” Mr. Di Florio said.

Whether a variable-annuity portion of a portfolio is appropriate depends on the client's objectives, Mr. Di Florio said. He stressed the importance of a broker's discussing those parameters before putting a customer into a complex variable annuity.

“The dialogue and disclosures are critical,” he said.

He also mentioned complex products and interest-rate-sensitive products as other vehicles Finra is monitoring.

James S. Shorris, executive vice president and deputy general counsel at LPL Financial, said financial advisers are put in a tough position when clients demand returns in the current low-interest-rate environment.

“You don't want to chase people into equities,” said Mr. Shorris, who moderated Mr. Di Florio's session. “Where do you send them? Where do they get that yield? We're struggling on that front. It's hard to find a reasonable yield if you're a retiree, and so we are seeing more equity … which creates more risk.”

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Vanguard's Joe Davis: Prepare for lower expected returns

The next five years will be more challenging for the markets than the past five, according to Joe Davis, global chief economist at Vanguard. Here's why it's more important than ever to stay reasonable with return expectations and stick to the plan.

Video Spotlight

Are Your Clients Prepared For Market Downturns?

Sponsored by Prudential

Video Spotlight

Path to growth

Video Spotlight

Path to growth

Latest news & opinion

Top 10 financial firms ranked by investor satisfaction

Find out which firm took the top slot for overall investor satisfaction for the second year in a row.

What not to say to clients when the markets drop

Here's what advisers should steer clear of saying the next time stocks turn downward.

SEC bars former rep for alleged share price manipulation

George Thoreson tried to keep penny stock's price high to enable Nasdaq listing.

Nevada fiduciary law raises concerns among retirement professionals, brokerage industry

Critics complain that it conflicts with ERISA and SEC rules and has potential to spur other states to pass their own version of a fiduciary rule.

A special need for financial advice

Advisers don't have to be experts to help special needs families get a jump on lifelong planning.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print