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Variable Annuities

Deferred variable annuities are hybrid investments containing securities and insurance features. Their sales are regulated both by FINRA and the Securities and Exchange Commission (SEC). These annuities offer investors choices among a number of complex contract features and options.

Due to the complexity and confusion surrounding them, which can lead to questionable sales practices, variable annuities are a leading source of investor complaints to FINRA.

FINRA developed Rule 2330 (Members' Responsibilities Regarding Deferred Variable Annuities) to enhance firms’ compliance and supervisory systems, and provide more comprehensive and targeted protection to investors who purchase or exchange deferred variable annuities. 

FINRA Rule 2320 (Variable Contracts of an Insurance Company) contains important requirements regarding cash and non-cash compensation arrangements associated with variable annuity sales.

FINRA Rule 2330 - Members' Responsibilities Regarding Deferred Variable Annuities

Rule 2330 establishes sales practice standards regarding recommended purchases and exchanges of deferred variable annuities. Among the rule’s key requirements, a registered representative, when recommending a deferred variable annuity transaction, must reasonably believe the customer has been informed of the various features of this type of annuity, such as a surrender charge, potential tax penalties, various fees and costs, and market risk.

Prior to recommending the purchase or exchange of a deferred variable annuity, a registered representative must make reasonable efforts to determine the customer’s age, annual income, investment experience, investment objectives, investment time horizon, existing assets, and risk tolerance.

A registered representative must have a reasonable basis to believe the customer would benefit from certain features of deferred variable annuities, such as tax-deferral, annuitization, or a death or living benefit. The rule also covers the suitability of a deferred annuity exchange for a particular customer, considering, among other factors, whether the customer would incur a surrender charge, be subject to a new surrender period, lose existing benefits, be subject to increased fees or charges, and has had another exchange within the preceding 36 months.

Principal Review and Approval Obligations

Rule 2330 requires a registered principal to review and determine whether to approve a customer’s application for a deferred variable annuity before sending the application to the issuing insurance company. This must occur no later than seven business days after an office of supervisory jurisdiction receives a complete and correct application. A principal can approve the transaction only if it is suitable based on the factors that a registered representative must consider when making a recommendation.

Firm Supervisory Procedures

Rule 2330 requires firms to establish and maintain written supervisory procedures reasonably designed to comply with the rule’s standards. Firms must implement surveillance procedures to determine whether brokers have incidence rates of variable annuity exchanges that might show misconduct, and have policies and procedures in place to address inappropriate exchanges.

Firms also must create training programs for registered representatives who sell deferred variable annuities and for registered principals who review these transactions.


Contact OGC

FINRA's Office of General Counsel (OGC) staff provides broker-dealers, attorneys, registered representatives, investors and other interested parties with interpretative guidance relating to FINRA’s rules. Please see Interpreting the Rules for more information.

OGC staff contact:
Jim Wrona
FINRA, OGC
1700 K Street, NW
Washington, DC 20006
(202) 728-8000

  • FINRA Reminds Firms of Their Responsibilities Under FINRA Rule 2330 for Recommended Purchases or Exchanges of Deferred Variable Annuities
    01/21/2010
  • SEC Approves Amendments to NASD Rule 2821 Governing Purchases and Exchanges of Deferred Variable Annuities
    06/11/2009
  • SEC Approves New NASD Rule 2821 Governing Deferred Variable Annuity Transactions
    11/06/2007
  • FINRA Clarifies Guidance Relating to SEC Regulation S-P under Notice to Members 07-06 (Special Considerations When Supervising Recommendations of Newly Associated Registered Representatives to Replace Mutual Funds and Variable Products)
    08/13/2007
  • Special Considerations When Supervising Recommendations of Newly Associated Registered Representatives to Replace Mutual Funds and Variable Products
    02/13/2007
  • Member Obligations with Respect to the Sale of Existing Variable Life Insurance Policies to Third Parties
    08/09/2006
  • Impermissible Use of Negative Response Letters for the Transfer of Mutual Funds and Variable Annuities (Changes in Broker-Dealer of Record)
    10/05/2004
  • NASD Seeks Comment on Proposed Rule to Impose Specific Sales Practice Standards and Supervisory Requirements on Members for Transactions in Deferred Variable Annuities
    06/09/2004
  • The NASD Reminds Members Of Their Responsibilities Regarding The Sale Of Variable Life Insurance
    06/16/2000
  • SEC Approves Rule Change Relating To Sales Charges For Investment Companies And Variable Contracts
    12/10/1999
  • Questions And Answers Relating To Non-Cash Compensation Rules
    07/01/1999
  • The NASD Reminds Members Of Their Responsibilities Regarding The Sales Of Variable Annuities
    05/01/1999
  • SEC Approves Rule Change Relating To Non- Cash Compensation For Mutual Funds And Variable Products
    09/01/1998
  • NASD Regulation Requests Comment On Amendments To Rules Governing Sale And Distribution Of Investment Company Shares And Variable Insurance Products
    08/01/1997
  • Application Of NASD Conduct Rules To Group Variable Contracts And Other Exempted Securities
    05/01/1997
  • NASD Regulation Reminds Members And Associated Persons That Sales Of Variable Contracts Are Subject To NASD Suitability Requirements
    12/01/1996
  • Guidance
    The Variable Annuities topic of the 2024 FINRA Annual Regulatory Oversight Report (the Report) informs member firms’ compliance programs by providing annual insights from FINRA’s ongoing regulatory operations, including (1) regulatory obligations and related considerations, (2) findings and effective practices, and (3) additional resources.
    January 09, 2024
  • Report / Study

    Variable annuity and variable life insurance products (collectively, “variable insurance products" or “variable products”) are being marketed and sold to a large number of investors. While variable insurance products may be appropriate investments for some investors, concerns have been raised about the sale of these products. This prompted the staffs of the Securities and Exchange Commission (“SEC” or “Commission”) and NASD (“Staff”) to conduct examinations of broker-dealers that sell variable insurance products. This report summarizes the findings of those examinations. 

    June 09, 2004
  • Interpretive Letter
    Separate sales contests under NASD Rule 2820(g) for group variable annuity contracts and employer-sponsored retirement plans.
    February 03, 2003
  • Guidance
    FINRA Rule 2330 (Members’ Responsibilities Regarding Deferred Variable Annuities) establishes sales practice standards regarding recommended purchases and exchanges of deferred variable annuities, including requiring a reasonable belief that the customer has been informed of the various features of annuities (such as surrender charges, potential tax penalties, various fees and costs, and market risk); and, prior to recommending the purchase or exchange of a deferred variable annuity, requiring reasonable efforts to determine the customer’s age, annual income, investment experience, investment objectives, investment time horizon, existing assets and risk tolerance.
  • Investor Education
    Are you considering exchanging a variable annuity that you currently own with a new one? Replacing one variable annuity with another should involve an analysis and comparison of the complex features of each security. You should exchange your annuity only when it is the smartest move for you.