Inappropriate Annuity Sales Still An Issue-Finra CEO
April 30, 2010 by Daisy Maxey
By Daisy Maxey, Of DOW JONES NEWSWIRES
WASHINGTON, D.C. (New York)–The Financial Industry Regulatory Authority, or Finra, remains concerned about the inappropriate sale of annuities to seniors, and its examinations of firms continue to raise red flags on the issue, Richard Ketchum, chairman and chief executive of the securities industry’s voluntary regulatory organization, said Thursday.
In addition, Ketchum said that while it’s not completely clear yet how the debate on financial reform will shake out, it does seem clear that there will be a focus on a common standard for broker-dealers and investment advisers. He also said more change is on the way for Finra’s examination/enforcement program.
Ketchum made his comments Thursday at the 2010 Government, Regulatory and Compliance Conference of the Insured Retirement Institute, a trade group of annuity providers, here.
Inappropriate sales crop up in particular with indexed and variable annuities, he said. Far too often investors’ liquidity needs and tolerance for risk are not taken into consideration during sales, Ketchum said.
Finra has also found evidence of inadequate training and supervision of sales persons and the failure to document transaction approvals. Prior to a sale, a variable annuity account executive should carefully review the sale to be sure a customer understands the risks and suitability of the product, Ketchum told his audience.
Finra’s examination/enforcement program has profoundly changed to ensure that when serious problems that could be fraud are identified, “we move to enforcement as soon as possible,” Ketchum said. No one can ensure that there won’t be another situation like the one that developed with Bernard Madoff, but Finra can ensure that there is a focus on fraud, he said.
Ketchum ensured his audience that going forward, Finra will work to be sure its examiners understand “what is going on with your firms,” so that it will spend more time on firms that pose a risk to investors and less time on those that don’t.
America is at the cusp of financial reform, but reform won’t address all issues, Ketchum said. He urged the annuity industry to be sure it undertakes meaningful discussions with customers, take their needs into consideration first and foremost and provide clear, plain English disclosure on products. He commended the IRI for its work with the Securities and Exchange Commission in efforts to create simplified prospectuses for annuities, much like those offered for mutual funds.
Finra also supports clear point-of-sale disclosure, he said. Profile Plus, a point-of-sale disclosure used for mutual funds, could serve as a model for simplified point-of-sale disclosure for variable annuities, and could be delivered via the Internet, he said.
-By Daisy Maxey; firstname.lastname@example.org; 212 416 2237)
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