RCA - March 1997 - Ask The Analyst - Variable Products

Q. Our variable annuity contract includes several underlying funds that have performance records pre-dating their inclusion in the contract. In advertising, is it permissible to include variable annuity rankings based on performance that pre-dates the fund's inclusion in the variable annuity?

A. Yes. However, the performance upon which the ranking is based must reflect the current costs of the variable annuity (i.e., the mortality and expense risk charge, any administrative charges and/or contract charges, etc.). Additionally, the presentation must not imply that the entire variable annuity product has been ranked. Rather, it must be clear that the ranking pertains only to the specific underlying fund's performance.

Q. May we discuss tax-deferral in our variable life insurance brochures?

A. You may include fair and balanced discussions of the tax-deferral benefits of variable life insurance that do not obscure the life insurance features of the product. Hypothetical tax-deferral illustrations showing a tax-deferred investment versus a taxable investment may be inappropriate, or even misleading, in variable life communications because they can overemphasize the investment aspects of the policy, or the potential performance of the sub-accounts. In addition, these types of illustrations may fail to reflect the significant costs associated with variable life insurance. The illustrations and accompanying discussion must permit the investor to evaluate how long it takes the benefit of tax deferral to offset the costs of the policy.

Q: Can member firms submit advertising or sales literature relating to fixed annuities to the Advertising Regulation Department?

A: NASD Regulation does not provide comment on material pertaining strictly to fixed annuities. However, material containing discussions of fixed annuities as part of an overall presentation of investment company securities (such as a variable annuity) should be filed in its entirety with the Advertising Regulation Department to facilitate a thorough review.