Alert October 27, 2009

FINRA Files Proposed Rule Changes Covering Marketing Materials for Variable Products

FINRA filed with the SEC proposed rule changes regarding marketing material for variable annuities and variable life insurance (collectively, “variable products”).  FINRA proposes to adopt new FINRA Rule 2211 as a replacement for current NASD Interpretive Material 2210‑2 (IM-2210-2).  The proposed new rule reflects FINRA’s response to comments filed after FINRA’s initial publication of proposed changes in Regulatory Notice 08-39 (as discussed in the August 5, 2008 Alert).

New FINRA Rule 2211 modifies some of the existing requirements of IM‑2210‑2 and codifies some of the FINRA staff interpretations that have developed through the advertising filing program since IM‑2210‑2 was adopted in 1993.  New Rule 2211 would also add new provisions regarding riders.  For example, the new rule would require that any communication discussing a guaranteed amount, benefit base or similar contract accumulation value that is not available for withdrawal in cash must clearly disclose that the value is not available in cash or, if applicable, the restrictions to and reductions taken when receiving such value if cash.  In addition, communications regarding riders would be required to explain costs and limitations of those riders.  New Rule 2211 would also provide detailed guidance regarding both hypothetical and historical illustrations.  In response to comments, FINRA clarified that the rules do not expand prospectus delivery obligations and determined not to require use of guaranteed maximum charges in certain historical performance illustrations.  If the SEC determines to move forward with this proposal, the next step would be the publication of the proposed changes in the Federal Register for public comment.