It’s not every day the Consumer Federation of America aligns its lobbying interests with the annuities industry, but the powerful group is making an exception, sending a letter to lawmakers asking them to pass legislation that would allow companies to streamline their registration and create more meaningful disclosures for index-linked annuities products.
The bipartisan “Registration for Index-Linked Annuities Act” was reintroduced in July and directs the Securities and Exchange commission to devise a new form for insurers and annuities companies to use when filing registered index-linked annuities, or RILAs.
RILA sales have grown rapidly in recent years, with $9.2 billion in sales reported in this year’s first quarter. A relatively new entrant in the retirement market, a RILA is a deferred annuity that uses a stock market index to determine gains and losses, while providing tax deferral. What sets it apart from other types of annuities is it gives investors the ability to set the maximum loss they are willing to tolerate.
However, the current lack of a specific form for registering the products with the SEC “can result in disclosures that are long, dense, and incomprehensible to the typical purchaser,” CFA’s financial services counsel Dylan Bruce said in a letter to House sponsors and leaders including House Banking Committee Chairwoman Maxine Waters (D-CA).
Because this legislation “offers a model for how disclosures can and should be designed with the needs of investors in mind, CFA is pleased to offer it our strong support,” Bruce said.
By directing the SEC to develop a tailored RILA registration form, the bill “should help to ensure that disclosures are more focused on the information investors need to determine whether the product represents a good option for them,” Bruce wrote.
Bruce said the CFA is particularly pleased the legislation would require that disclosures be made based on “the knowledge and sophistication of purchasers, and the complexity of the product. Furthermore, the bill requires the SEC to engage in investor testing and incorporate results of that testing in the design of the form, with the goal of ensuring that key information is conveyed in terms that purchasers are able to understand,” he added.
The Insured Retirement Institute, which represents the annuities industry, announced its support for the measure last month.
“We appreciate CFA’s support of this important pro-investor, pro-innovation legislation,” Paul Richman, IRI chief government and political affairs officer, said in a statement.
“This legislation will encourage product innovation and ensure investors can easily find the information they need about RILAs and other innovative products without having to wade through irrelevant, excessive, and confusing disclosure documents,” Richman said.
Under current SEC rules, RILAs must be registered using forms designed primarily for equity offerings which require extensive information that is not relevant to prospective annuity purchasers, the IRI said.
These forms also require disclosure of financial information prepared in accordance with generally accepted accounting principles, which many insurers are not otherwise required to produce.
The legislation will address the “misalignment between the current registration forms used for RILAs and the information needed by investors who might benefit from purchasing these products,” IRI said.