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.

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

Sponsored financial news

Featured video

Events

What's the first thing advisers should do when they get home from a conference?

After attending a financial services conference, advisers can be overwhelmed by options, choices and tools. What's the first thing they should do when they get back to their office?

Latest news & opinion

Is Fidelity competing with retirement plan advisers?

As the Boston-based mutual fund giant expands the products and services it brings to the retirement market, some financial advisers say the firm is encroaching on their turf.

Gun violence hits investment strategies, sparks political debates with advisers

Screening out weapons companies has limited downside.

Whistleblower said to collect $30 million in JPMorgan case

The bank did not properly disclose that it was steering asset-management customers into investments that would be profitable for JPMorgan Chase.

Social Security underpaid 82% of dually entitled widows and widowers

Agency failed to tell survivors that they could switch to a higher retirement benefit later.

If Finra eases firm oversight of outside business activities, broker-dealers could lose revenue

Brokerage firms would no longer be able to charge reps for supervising nonaffiliated RIAs.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print