Securities and Exchange Commission Investor Advocate Rick Fleming added his voice this week to what advocates say is growing support for improving disclosures for variable annuities.
In a
report to Congress on Tuesday, Mr. Fleming said that he backs a so-called variable annuity summary prospectus, which would provide information about the risks, costs and benefits of the complicated products in a streamlined manner.
Usually, prospectuses run 150 to 200 pages for a variable annuity, which is an insurance product that combines an underlying mutual fund investment with income-guarantee features. A summary prospectus would be five to 15 pages. Current rules prohibit firms from issuing a pared down prospectus.
“We strongly support [SEC] staff's efforts to address the problem of lengthy and complex disclosure for each variable annuity,” Mr. Fleming wrote.
A former SEC commissioner said this week that strengthening disclosure is an issue on which the increasingly fractious five-member SEC should be able to agree.
“This is an area that it would seem to me to be on where you could find pretty wide consensus,” Troy Paredes, who served as an SEC member from 2008-13, said at an Insured Retirement Institute conference on June 29.
'STRAIGHT DOWN THE FAIRWAY'
He added: “It's so straight down the fairway. It's all about disclosure. It's all about empowering investors by rethinking the format and presentation of information to make it more understandable and digestible.”
The IRI has been pushing for a variable annuity summary prospectus for about nine years. The SEC approved a mutual fund summary prospectus in 2008 but has yet to propose one for variable annuities.
The problem is “not that it's not a priority,” Mr. Paredes said. Rather, the SEC agenda is crowded with other proposals mandated by the Dodd-Frank financial reform law.
But Lee Covington, IRI senior vice president and general counsel, said that all five commissioners told IRI in meetings last fall that they back the summary prospectus and believe the agency could propose a rule.
“It's unclear what the holdup is, particularly in light of the strong support by all commissioners,” Mr. Covington said in an interview. “Several commissioners have indicated that the agency has the bandwidth to do this rulemaking.”
The effort to get the agency to move on a proposal could be boosted by the recent naming of
Andrew J. “Buddy” Donohue as SEC Chairman Mary Jo White's chief of staff.
CHIEF OF STAFF BACKING?
Mr. Donohue supported a VA summary prospectus when he was the director of the agency's division of investment management, according to Richard Choi, a partner at Carlton Fields Jorden Burt.
“We have a unique opportunity,” Mr. Choi said at the IRI conference. “Perhaps we should be reaching out to Buddy.”
Mr. Covington said that the SEC should act quickly, if it wants to get a summary prospectus in front of investors in 2016.
“They need to release a rule proposal in the next two to three months or we'll miss the 2016 window, and investors won't have a summary prospectus until 2017,” he said.
