NASD urges summit with states, industry on annuity regulations

Jan 23, 2006 @ 12:01 am

By Sara Hansard

WASHINGTON - NASD officials are setting their sights on fixed annuities, and they want a "summit" meeting with state insurance regulators, and insurance and securities industry officials, to discuss common sales-practice rules for all annuity products.

At a Jan. 9 speech to the North American Securities Administrators Association Inc. enforcement conference in Miami Beach, Fla., Robert Glauber, chairman and chief executive of NASD, talked about different regulations governing equity index annuities and other fixed annuities, as well as variable annuities. He called for "a concerted effort by all interested parties to harmonize the rules governing sales of these three versions of the same product."

Several days after Mr. Glauber's speech, the chairman of the insurance regulators' annuity committee endorsed expanding proposed suitability standards for annuities to all customers, regardless of age. But state insurance regulators chafed at Mr. Glauber's criticism about their regulation of annuities.

At the NASAA conference, he described several problem sales cases that NASD officials in recent years have seen involving fixed annuities.

NASD is "not proposing any new rulemaking on our part or any expansion of our jurisdiction. This is not about turf," Mr. Glauber said.

"It is about leveling the regulatory playing field in the interest of investor protection," he said. "It is simply an effort at harmonizing and clarifying disparate rules and regulations that apply to not-so-disparate products."

Washington-based NASD already is beginning to set up the meeting, Elisse Walter, executive vice president of regulatory policy and programs, said in an interview.

"This is something we want to go ahead with," she said. "We will be contacting people as we go forward and set this up."

Creating comparable standards

The summit is "really a policy-level initiative" of NASD, Ms. Walter said.

"We are looking at this from the point of investors that are being sold products under different regulatory regimes. They have no reason to know that," she said.

"It would be better for them if comparable standards were applied, regardless of the classification of the product," Ms. Walter added.

Fixed-annuity sales are regulated by state insurance regulators, while variable annuity sales are regulated at the national level by NASD and the Securities and Exchange Commission. Equity index annuities, which have come under increasing regulatory scrutiny in recent years, are "essentially a jump ball" for regulators, Mr. Glauber said at the NASAA conference, because it isn't clear whether they are securities or insurance products.

NASD will push for expanding the suitability standards that brokers must meet for all annuities, Ms. Walter indicated. NASD has been working with regulators in Minnesota, which adopted a broad suitability standard for insurance products sold to people of any age that is similar to NASD's suitability regulations.

"NASD's position will be to advocate to have that type of standard across the board," Ms. Walter said.

Depending on the reaction, NASD also may push for setting standards for annuity sales that cover fair dealings with clients as well as disclosure, she added.

The idea of collaborating on regulations over all annuities "is a great idea; I'm all in favor of it," said Jim Nelson, Mississippi assistant secretary of state for regulation and enforcement. Based in Jackson, he has jurisdiction over securities regulation.

"We state securities regulators and the NASD [have] been focusing on variable annuities because of the point-of-sale abuses in that product," Mr. Nelson said. But, while sales-practice problems from variable annuities may be abating somewhat because of national attention in recent years, complaints have risen regarding sales practices of equity index annuities.

"When you shine the light on one product, problems come up in another," Mr. Nelson said. "It's a constant stamping out of fires for regulators."

He and some other state securities regulators have called for expanding state securities jurisdiction to cover variable annuities, which are regulated nationally as securities. The life insurance industry has fought that proposal, arguing that it would lead to duplicative regulations and that state insurance regulations that govern VA sales in most states protect consumers adequately.

Insurance regulators are "always happy to participate in any constructive dialogue that can potentially better protect consumers," said North Dakota Insurance Commissioner Jim Poolman. He is chairman of the life insurance and annuities committee of the National Association of Insurance Commissioners of Kansas City, Mo.

However, Mr. Poolman took issue with criticism of the NAIC's suitability proposal Mr. Glauber made in his NASAA speech.

"I'm not sure why the NAIC thinks such a lax suitability requirement provides adequate investor protection," Mr. Glauber told NASAA, referring to the NAIC model rule that would apply to people over age 65. States often enact laws based on model rules.

"I was a little surprised at the tack Glauber took," Mr. Poolman said. "Our model was for people 65 and over, [because] that's where the problems were occurring."

At a recent American Council of Life Insurers meeting of industry chief executives in San Antonio, Mr. Poolman called for expanding the NAIC's model annuity suitability rules to people of all ages.

"Purchasing life and annuity products can be complicated and confusing for consumers of all ages," he said in a release issued Jan. 13.

"We've seen increasing reports of inappropriate sales to consumers of all ages, and it's time to expand protections to include everyone."

The ACLI, based in Washington, would welcome talks among regulators, said Linda Lanam, vice president of annuities and market regulation. "But the most important thing is for the regulator that has the most jurisdiction over the product to be the one that regulates," she said.

"The primary focus should be on insurance regulation," Ms. Lanam said. "We think state insurance regulators are focused on insurance regulation."

The ACLI is willing to consider expanding annuity suitability rules to cover all age groups, Ms. Lanam said.

Both the insurance and the securities regulators in Kentucky, one of the states cited by Mr. Glauber as having a sales abuse case that involved fixed and variable annuities, said that that state already has a good collaborative effort between the state's insurance and securities agencies, which are in the same department.

"I certainly can't be dismissive that multiple regulatory agencies should all be on the same page," said Glenn Jennings, executive director of Kentucky's Office of Insurance in Frankfort.

Insurance and securities regulators in Kentucky have a good working relationship, said Colleen Keefe, director of its division of securities.


What do you think?

View comments

Recommended next

Upcoming event

Nov 19


New York Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in six cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more


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 It'll help us continue to serve you.

Yes, show me how to whitelist

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


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print