August 3, 2005
This proposal is troubling for my clients, my firm and me personally, as we cater to older clients who are very risk averse. Below are some of my concerns:
We do not allow clients to invest with us until the third meeting, and time horizon should be only one factor in determining suitability. Each situation should be measured independently and your proposed approach is at odds with other products with respect to which the SEC or NASD has taken such a one dimensional approach to suitability determination. Therefore, time horizon should be included as one of the suitability criteria listed in paragraph b2 of the Proposed Rule, or if the NASD does not intend for time horizon alone to be the determinant of whether a recommendation can be made, the NASD must clearly define what it means by long-term investment objective.
Certain product specific criteria listed by the NASD are either unclear or irrelevant to a suitability determination and the establishment of a new suitability rule for Deferred Variable Annuities is unwarranted in that Rule 2310 already provides satisfactory suitability standards for all other products except for volatile, high-risk products such as options, securities futures, currency and index warrants, etc.
With regards to miniums or maximums of investments in DVAs, how would I tell a very conservative client who wishes to protect their downside while still participating in the markets that we cannot put too much money into a portfolio where the risk can be transferred via a living benefit?
I do support the training proposed in paragraph e of the Proposed Rule that would mandate more consistent and better training for registered reps and supervisors, including product presentations and registered rep training by product sponsors, as well as better, more meaningful disclosures that add a plain English summary discussion and Q&A on product features and risks at the beginning of the prospectus that links to a more detailed discussion of each item in the body of the prospectus.
Overall, I am very concerned that Proposed Rule 2821, applied in its present form, will have substantial unintended consequences and could ultimately harm customers by making DVAs less available to those who need them as legitimate tax-deferred savings and estate and retirement-planning tools.