SEC weighs guaranteed securities

The Securities and Exchange Commission has not made an official call on whether synthetic guaranteed minimum withdrawal benefits should be registered and if they should be treated as securities, an SEC official said this week at the NAVA Compliance and Regulatory Affairs Conference in Washington this week. Under this structure, one firm offers an investment and another offers insurance on the product. For instance, Lockwood of Malvern, Pa., provides unified managed accounts and Phoenix Equity Planning Corp., a unit of The Phoenix Cos. Inc. in Hartford, Conn., provides insurance that guarantees clients’ withdrawals. “From a policy point of view, viewed with an underlying investment, this looks like a variable contract,” William Kotapish, assistant director of the SEC’s division of investment management, said at the conference. “If you collapsed the two, it looks like a variable annuity, and from that perspective, the staff has talked about it making sense to regulate like things similarly.” A number of companies have attached guarantees to mutual funds, separate managed accounts, and other investment vehicles. The benefit typically guards a pool of assets in an investment account, permitting withdrawal from the base at a set level and maintaining distributions if the assets are depleted. The regulator has been in talks with attorneys to determine whether a “guarantee of a security is a security” or insurance, but “it would be difficult for the staff to say that they’re not securities,” Mr. Kotapish said. Three of these products are up and running, according to panel moderator Frederick Bellamy, a partner at Sutherland Asbill & Brennan LLP of Atlanta and Washington.