Alert August 05, 2008

FINRA Proposes To Update and Consolidate Rules Governing Marketing of Variable Annuities and Variable Life Insurance

FINRA issued a Regulatory Notice that proposes to update and consolidate the guidelines on illustrations of tax-deferred versus taxable compounding in advertising and sales literature (NASD Interpretive Material 2210-1) and communications with the public about variable life insurance and variable annuities (NASD Interpretive Material 2210-2).  The proposed changes would:

  • shorten and simplify existing provisions regarding product identification, liquidity and guarantee claims;
  • consolidate previous FINRA staff guidance concerning variable insurance product communications;
  • address changes in variable insurance products and the manner in which they are advertised, particularly with regard to riders, hypothetical illustrations and investment analysis tools; and
  • codify FINRA staff guidance concerning comparative illustrations of the mathematical principle of tax-deferred versus taxable compounding.

Although the revised rules would in many cases simply clarify existing rules and codify existing staff positions, the proposed rules would limit to 10% the assumed rates of return used in hypothetical illustrations and would alter the requirements for single-customer illustrations using the weighted average of underlying fund expenses. 

The comment period on the proposal expires September 30, 2008.