Regulatory Notice 09-42

FINRA Reminds Firms of Their Obligations With Variable Life Settlement Activities

Sales of existing life insurance policies to third parties—referred to as life settlements—have increased in recent years and the trend appears likely to continue. FINRA is concerned about variable life settlements because they involve materially different factors and raise materially different issues than more widely held securities such as stocks or bonds. Additionally, firms' marketing of variable life settlements is directed almost exclusively toward senior investors who, concerned about current economic conditions and retirement, may consider selling their variable life insurance policies without fully appreciating the risks and costs of variable life settlements.

FINRA reminds firms that:

  • variable life settlements are securities transactions that are subject to the federal securities laws and all applicable FINRA rules;
  • if they seek to enter the business of variable life settlements, they must file an application for approval of this material change in business under NASD Rule 1017;
  • they must present balanced and fair information in their advertising and other communications with the public and customers about variable life settlements and related products,1 and otherwise comply with all aspects of NASD Rule 2210; and
  • they must adhere to suitability obligations under NASD Rule 2310; fair and reasonable commissions under FINRA Rule 2010 (formerly NASD Rule 2110), NASD Rule 2440 and related guidance; and fair fees and the disclosure of fees under NASD Rule 2430.

Questions concerning this Notice should be directed to:

  • Lawrence Kosciulek, Director, Investment Companies Regulation, at (240) 386-4535;
  • Matthew E. Vitek, Counsel, Office of General Counsel (OGC), at (202) 728-8156 (regarding membership); or
  • Sharon Zackula, Associate Vice President and Associate General Counsel, OGC, at (202) 728-8985 (regarding compensation).