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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.


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FINRA Reminds Firms of Their Responsibilities Under FINRA Rule 2330 for Recommended Purchases or Exchanges of Deferred Variable Annuities
January 21, 2010
SEC Approves Amendments to NASD Rule 2821 Governing Purchases and Exchanges of Deferred Variable Annuities
June 11, 2009
SEC Approves New NASD Rule 2821 Governing Deferred Variable Annuity Transactions
November 6, 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)
August 13, 2007
Special Considerations When Supervising Recommendations of Newly Associated Registered Representatives to Replace Mutual Funds and Variable Products
February 13, 2006
Impermissible Use of Negative Response Letters for the Transfer of Mutual Funds and Variable Annuities (Changes in Broker-Dealer of Record)
October 5, 2004
SEC Approves Rule Change Relating to Sales Charges for Investment Companies and Variable Contracts
December 10, 1999
Questions and Answers Relating to Non-Cash Compensation Rules
July 1, 1999
The NASD Reminds Members of Their Responsibilities Regarding the Sales of Variable Annuities
May 1, 1999
SEC Approves Rule Change Relating to Non-Cash Compensation for Mutual Funds and Variable Products
September 1, 1998
NASD Regulation Requests Comment on Amendments to Rules Governing Sale and Distribution of Investment Company Shares and Variable Insurance Products
August 1, 1997
Application of NASD Conduct Rules to Group Variable Contracts and Other Exempted Securities
May 1, 1997
NASD Notice to Members 96-86 - December 1996
December 1, 1996
Part two of this six-part series covers sales practice priorities for products, such as fixed income products, variable annuities, and alternate funds.
June 30, 2015
A discussion of FINRA's rule governing recommended purchases and exchanges of deferred variable annuities.
November 9, 2009
FINRA Chief of Enforcement Susan Merrill discusses variable annuities.
July 21, 2008
Investor Education
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