SEC adopts rule to streamline variable annuity, variable life prospectuses

Summary prospectuses will be considerably shorter than the documents customers currently receive

The Securities and Exchange Commission approved a rule Wednesday that it said would help investors better understand variable annuities and variable life insurance contracts.

Under the rule adopted by the commission, issuers can provide an initial summary prospectus that includes a table outlining a product’s fees, features and potential risks. The prospectus also would include an overview of the contract and more detailed disclosures relating to fees, purchases, withdrawals and other benefits, according to an SEC fact sheet.

Such a document would be considerably shorter than current variable annuity prospectuses, which run anywhere from 150 to 300 pages.

An initial summary prospectus would go to new customers. An updating summary prospectus, which includes a description of changes made to the contract during the previous year, would go to existing investors.

If investors want to drill down on a contract, they can access a longer prospectus online through a link in the summary prospectus.

The SEC describes a summary prospectus as “a concise, reader-friendly summary of key facts about the contract.” The agency characterized as “layered disclosure” the option of using an initial summary prospectus or taking a deeper dive online.

Variable insurance products can provide an income stream in retirement and other benefits for investors. They are also complex and can come with high fees and high risk.

“The commission is taking this important step to improve Main Street investors’ understanding of these products,” SEC Chairman Jay Clayton said in a statement. “With today’s technology and the benefits of layered disclosures, investors should not have to work through hundreds of pages of disclosure to understand these products’ risk, fees and features in order to make informed investment decisions.”

The Insured Retirement Institute and other insurance industry organizations have been pushing the SEC for a VA summary prospectus for a about decade.

“This is a major leap forward in the ability to provide consumers with information they need to make educated investment decisions about financial products that can be essential to ensure a secure and dignified retirement,” Jason Berkowitz, chief legal and regulatory affairs officer at IRI, said in a statement. “We are carefully scrutinizing the final rule with our members to fully understand its ramifications and to ensure that it allows for a more rational disclosure of important consumer information versus today’s required book-length paper versions delivered by U.S. mail.”

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