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FINRA Concerned about Variable Annuity Sales

The Financial Industry Regulatory Authority will continue to be “very focused” on variable annuities, according to chief risk officer Carlo di Florio. In a statement made last Monday, di Florio said that “variable annuities remain one of the products that’s always at the top of the investor complaint list”.

Topping the list of customer complaints about variable annuities are sales practices, disclosure and surrender charges.

Also a concern is that variable annuities are taking on features resembling complex structured products, such as variable annuities that have a buffer and cap. These features may add to the products complexity by varying its exposure to market volatility. Di Florio noted that its important for reps selling this type of annuity to have the ability to explain the “trade-off between the buffer and the cap”.

While the downside buffer will put a floor on how far the account value will fall during a market slump, the upside cap will limit how high the return will be during a rally.

Investors need to understand what they are getting into with these products, and that means the “dialogue and disclosures are critical”.


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