NASD / SEC Target Variable Annuity Sales to Seniors
From Forbes.com:
A new rule proposal put forth by the NASD aims to keep the products from being aimed at unsuitable investors. The proposal has some industry analysts worried about life insurers becoming hamstrung by age restrictions that could crimp their ability to jump into the fast-approaching baby-boomer retirement market. Dubbed proposed rule 2821, it’s under review by the U.S. Securities and Exchange Commission.
NASD officials have said they reacted to myriad customer complaints over the product’s confusing conditions over the years, such as unsuitability for older customers and early-withdrawal charges. While the SEC often tinkers with rule proposals before giving final approval, some analysts are leery of too much focus on age.
The proposed rule doesn’t specify an industrywide age over which customers could not be sold variable annuities. But it does assert, along with stipulations on customer liquidity needs and fee transparency, that it would be illegal to sell the product to someone “over a specific age as established by the member [meaning the carrier].” That means a firm that sets a lower age bar to protect itself on the legal front risks losing out on a lot of business. At the same time, the vague age standard would open the doors to potential lawsuits from 60- and 70-something clients whose fund performs poorly, experts say.
“It might open a can of worms for plaintiffs,” says Lewis Lowenfels, an expert in securities law at New York law firm Tolins & Lowenfels, who thinks anyone who wants an annuity should be able to buy one. “While these contracts should be open with everything fully disclosed, you don’t want to start babying the customers.”
I’m interested to find out how the SEC will react to this proposal. While something should definitely be done to protect consumers, they need to make sure the insurance companies are still able to do business properly without fear of frivilous lawsuits.