Want a simple prospectus for variable annuities? No can do, says SEC official

While investors and advisers have crowed about the density of variable annuity prospectuses, officials at the Securities and Exchange Commission say that the products are generally too complex to describe in abbreviated set of disclosures. “The big issue with the variable annuity summary prospectus is content, not the delivery,” said Susan Nash, associate director, division of investment management at the SEC. “They’re more complex; they have underlying investment options and layers of complexity at the contract level.” Ms. Nash, speaking Friday at the Insured Retirement Institute’s 2010 Government, Regulatory and Compliance Conference in Washington, noted that there’s a natural challenge when comparing the prospectuses of variable annuities with mutual funds. Variable annuities’ living benefits, wide range of fees — and the fact that contracts can have indexed and variable subaccount choices — make it hard to cram information into a single document. “With mutual fund summary prospectuses, we drew a clear line: one fund or series per document,” Ms. Nash said. “But in the variable annuity space, we have struggled for years over what is a single contract: How many things can be in a prospectus statement and count as a single contract?” She added that the issue of disclosure behind underlying funds was even more important since some contracts restrict investors to a certain group of subaccount investment options if those investors opt to take advantage of a guaranteed benefit rider.