RCA - Winter 2001 - Presentation of Variable Life Insurance Performance in Member Communications

The Advertising Regulation Department (the Department) has seen an increase in member sales material that promotes variable life insurance products. Members are required to file variable life insurance sales material within 10 days of first use under NASD Rule 2210 (the rule). Frequently, this material includes performance information that can be an important factor for investors in determining whether to purchase variable life insurance. The increasing complexity and the significant differences among variable life insurance products raise regulatory issues with respect to the presentation of variable life insurance performance information.

The rule requires member communications to provide a sound basis for evaluating the facts regarding a particular security, and prohibits exaggerated, unwarranted, and misleading statements. The Department interprets these standards to require member communications that present variable life insurance performance to prominently disclose the significant impact that fees have on such performance.

The Department has determined that variable life insurance performance presentations, preceded or accompanied by a prospectus, comply with the rule if they meet the following standards:

• Performance information reflects, at a minimum, the deduction of all fees and charges applicable at the underlying fund level.
  
  
• The communication clearly, prominently, and in close proximity to the performance shown:
• • identifies the fees and charges deducted from the performance;
  • identifies the fees and charges not deducted from the performance;
  • discloses that, if all fees and charges had been deducted, the performance quoted would be significantly lower.
    
    
• The communication includes a statement urging investors to obtain a personalized performance illustration. The illustration must reflect all applicable fees and charges, including the cost of insurance.
  
  
• The communication refers investors to the hypothetical illustrations in the prospectus (if applicable) that show the effect that fees and charges have on performance.

The Department will also consider alternative methods of presenting variable life insurance performance on a case-by-case basis.

Members should contact the Advertising Regulation Department at (240) 386-4500 with any questions regarding variable life insurance performance presentations.