May 2, 2024
From: Abate, Michele Sent: Thursday, May 2, 2024 6:32 PM To: Johnson, Brian M.; Gude, Bradley Cc: Kent, Dodie Subject: Follow-Up from the SEC Staff/Brighthouse Meeting on April 10th re: Proposed RILA Rulemaking--Advertising Considerations Hi Brian and Brad. Thank you for meeting with our Brighthouse team regarding our concerns about broad-based advertising and its accessibility in the new RILA disclosure framework. We are hopeful you found the conversation beneficial, and that we helped paint a clearer picture of RILA broad-based advertising, in terms of its content as well as its general importance to the retirement retail market. It is our sincere hope that RILAs do not get shut-out of this important advertising venue under the new SEC RILA framework. To that end, as a supplement to our discussion, we wanted to add the following thoughts: As we and others in the industry have noted, perhaps the simplest objection to leaving RILA broad-based advertising out of this rulemaking is that such an omission does not seem to have a meaningful substantive underpinning. Like variable life and annuity insurance, if RILAs can be offered and sold absent 1934 Act reporting, it seems fundamentally incongruous to make the very same reporting a requisite to RILA broad-based advertising. Put differently, RILAs are moving to Form N-4 because the requirements of Forms S-1 and S-3 are inconsistent with insurance product offerings. Respectfully, changing the form but retaining some of the prior form’s requirements in order to access broad-based advertising creates an unnecessary and detrimental disconnect in the insurance marketplace. You have noted a concern with amending Rule 433 to capture RILA contracts in a way that it is not generally available to other 1933 Act (only) contracts. Respectfully, it is hard to fully appreciate this concern. Under the new RILA framework, as proposed, RILAs (and possibly other non-variable insurance contracts) would be treated differently, including registration on Form N-4 (versus S-1 or S-3), the use of STAT financial statements without individual company relief and the omission of Regulation S-K disclosure requirements. Amending Rule 433 to include a carve-out for RILA contracts registered on Form N-4 would appear consistent with these other thoughtful distinctions. Alternatively, the staff has appeared positive in terms of the possibility of maintaining the “status quo,” i.e., retaining the ability to broad-base advertise only for those RILA issuers that file 1934 Reports. In the event that the SEC opts only simply to maintain said status quo, the SEC would need to amend Rule 433(b)(1) nonetheless, as it appears that no RILA offerings on Form N-4 (even those by WKSIs or registrants that otherwise continue to file 1934 Act reports) would fit within the eligible offerings listed under Rule 433(b)(1). To maintain the status quo, Rule 433(b)(1) would need to be amended or positive interpretive guidance would be needed. In this regard, we feel it is important to remind the staff that most RILA issuers are not well-known seasoned issuers and none will remain technically “eligible” to file on Form S-3. Importantly, we further note, while having any access to broad-based advertising is better than no access, we respectfully note that effectively requiring 1934 Act reporting, GAAP financials and Regulation S-K disclosures in order for RILA issuers to broad-base advertise (again, the very same requirements that the rulemaking would remove from the RILA registration requirements) is inconsistent and feels contrary to the very purpose of the RILA rulemaking. Last, if the staff does not amend Rule 433 at least to maintain the status quo, i.e., continue to permit RILA issuers who file 1934 Act Reports to have access to broad-based advertising, Brighthouse (and other insurers) would potentially continue to be a 1934 Act reporter but not be able to broad-base advertise its RILAs. Moreover, Brighthouse would be able to advertise its registered index-linked life policies because they would continue to be included in Rule 433 (they are filed on Form S-3). Respectfully, we hope you agree that both these situations, of course would be nonsensical. We continue to believe that broad-based RILA advertising (more logically) could be addressed through the extension of Rule 482 to RILAs, which could be made subject to two additional conditions: (i) such 482 ads would not be permitted to include RILA performance, and (ii) 482 ads would be filed with FINRA (as they are today, along with all other types of RILA materials). In this regard, you noted your concern that Rule 482 has no substantive requirements that are unrelated to performance, to which we wish to note the following: Rule 482 ads must be consistent with prospectus disclosure, and, of course, all RILA prospectuses are subject to SEC staff review and comment, as well as, of course, comply with the various requirements of paragraphs (b)(1) and (5) of Rule 482. As proposed, Rule 156 would also apply. Consistent with FINRA’s review today and going forward, FINRA Rule 2210(d)(1) would apply, which includes, among other things, that materials must: be fair and balanced; contain all material facts and not make any false, exaggerated, unwarranted, promissory or misleading statements; not use legends in a manner that would inhibit an investors understanding of the information; be appropriate for the targeted audience; and appropriately qualify and expertise any testimonials. Respectfully, as such, there would be multiple layers of regulatory oversight providing investor protection. Additionally, as an aside we would strongly argue that the fact that Rule 482 requirements would largely be inapplicable to RILA ads because those requirements primarily relate to performance and such RILA ads will not include performance seems insignificant. Rule 482 was not intended for performance ads only. Accordingly, if a 482 ad does not contain performance, it does not mean that Rule 482 should not apply or be available. Moreover, as outlined above, other regulatory requirements also apply, as they do today to 482 ads that both do and do not contain performance. In the context of these discussions, the staff has noted that RILAs do not have the protections provided by the 1940 Act. As this relates to the interplay with Rule 482 ads, we wonder if there is a possible further carve out to address any specific concerns. We would be happy to discuss thus further. We are sincerely grateful for the staff’s willingness to meet with us and for the helpful dialogue on this issue. Broad-based advertising is critical to retirement investors and to Brighthouse’s insurance platform. Please let us know if we can provide any additional information or if further discussion would be helpful. Thank you again. Regards, Michele Michele H. Abate Head of Securities Products & Funds Law