The environment for high-commission variable annuities sales gets a little less friendly by the day.
Both the Securities and Exchange Commission and the Financial Industry Regulatory Authority are hyper-focusing their advisor examinations on variable annuities. That’s the word from securities attorneys at Eversheds Sutherland, who spoke during a press conference Thursday. The regulators are looking for product sales where pricing and commissions appear excessive and instances where advisors are doing costly swaps of clients’ existing contracts for new VAs that add little or no client benefit but generate new commissions and fees.
The law firm looked at preliminary enforcement statistics for 2018. According to Eversheds Sutherland partner Brian Rubin, the statistics show that Finra was zeroing in on advisors’ unsuitable sales, especially variable annuities, and levied $10 million in fines.
“One big enforcement Finra brought,” Rubin said, “involved a $4 million fine against a firm for suitability violations for variable annuities exchanges. The firm was also required to pay $2 million in customer restitution.
“This gives you an indication that the level of Finra interest and level of fines are high,” he said.
To throw a spotlight on variable annuity fees and commissions and judge whether they’re suitable for customers, the SEC has proposed a sweeping new layered approach to VA customer disclosures and has published a new investor alert on VAs. The alert urges consumers to review the policy prospectuses, ascertain all costs and “be prepared to ask your financial professional questions about whether the policy is right for you.”
In the meantime, the state of Maryland has introduced legislation that would make all brokers and insurance agents fiduciaries—a standard that has traditionally prevented commission sales of any kind. If the state’s legislature is successful, brokers and agents operating in the state might only be able to offer clients no-load variable annuities.
Can the salad days of the 4%-9% variable annuity commission and additional 4%-9% “early withdrawal penalties” survive this assault?
Don’t expect the powerful securities or insurance industries who defeated the Department of Labor fiduciary rule in court to mount anything less than the most aggressive of campaigns to derail the bills or any push to constrain VA sales.
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