FINRA PROPOSES MODIFYING VARIABLE PRODUCT MARKETING RULES
FINRA proposed new rules governing variable annuity marketing materials. The proposal requires any illustrations of tax deferred compounding to use actual and relevant income tax rates, apply a rate of return not to exceed 10%, and show the impact of fees, expenses and charges upon early withdrawal. The proposal would also require any performance information to comply with the same performance standards applicable to mutual funds under Rules 482 and 34b-1. The new rules also require complete disclosure about riders including a statement that a rider is optional. The modified rules allow the use of performance that pre-dates the creation of the variable product so long as the sponsor provides appropriate disclosure on the limits of the performance. The proposal amends IM 2210-1 and re-writes IM 2210-2. Comments are due by September 28.
OUR TAKE: The revised marketing rules serve as companions to the new Rule 2821, which governs sales practices for variable annuities. By mandating specific disclosures and sales practices, FINRA has provided clear guidance to the industry and has attempted to simplify product descriptions for investors.