NAFA Member UpdateThe NAFA Board of Directors met in Washington DC last week to discuss the organizations initiatives to reverse Rule 151A that was adopted by the SEC on December 17th, 2008. NAFA Premier and Associate Partners make up over 97% of all fixed indexed annuity sales and represent both insurance companies and marketing organizations. NAFA believes that Rule 151A has significant legal and jurisdictional issues and the Board agreed to aggressively pursue all avenues to defeat Rule 151Aincluding legislative initiatives and judicial action.
In addition, the Board authorized NAFA to continue work with State Regulators, the NAIC and the SEC to address current regulatory initiatives as well as the open issues that remain following the adoption of Rule 151A. NAFA's goal in this endeavor will be to ensure that any regulations adopted result in meaningful consumer protection that is not a guise to reduce consumers' accessibility to all fixed annuities or to adversely impact fixed indexed annuities.
The SEC’s Rule 151A Adopting Release does not address a number of significant issues regarding the implementation of the Rule. In short, the Release fails to address what the SEC and FINRA will require of issuers and distributors. All of these questions will need to be worked through and NAFA will monitor efforts and offer input while it fights to reverse the Rule. Some of the most significant questions still unanswered are:
1. What type of license or, in FINRA's language, the type of registration will be required for producers? This distribution issue (and others) falls to FINRA and not the SEC. It appears based on an initial reading that FINRA may have to develop a new registration, exam and set of training materials tailored for indexed annuity salespersons. For example, why should an agent have to be trained in variable annuities when indexed annuities are so different in not having separate accounts or underlying fund options?
2. How will the Rule be implemented? The Release indicates that the SEC would tailor disclosure and accounting requirements for indexed annuities. It will take the SEC time to develop a new form for the registration statement for indexed annuities. The new registration form must set forth the requirements for the consumer disclosure in the prospectus. The SEC staff recognizes the need to tailor the registration form for indexed annuities under the Securities Act. This is not an easy task for the SEC staff, and will require that they understand the product. NAFA and its members will offer to help SEC staff to ensure that any registration form adopted would provide meaning disclosure to consumers.
3. Does the Rule include other products besides annuities whose interests are determined based on an index performance calculation?
Comments: Kim O’Brien