August 10, 2005
I have four general concerns regarding any new regulation for the sale of Deferred Variable Annuities.
First, in regard to the TIME HORIZON standard, if the regulation writers have a specific standard in mind, it should be stated so that it could be considered and discussed. There are situations where placing assets in a DVA can be very valuable where the time horizon may be quite short 2 or 3 years , but the benefits of the DVA vehicle far outweighs time horizon considerations. Time horizon should be considered, but only in balance with other factors.
Second, the range of investment objectives available in most DVAs is large enough to meet a wide range of suitability considerations. To write product specific standards that make sense in the real world situations that Reg. Reps. see is going to be a very difficult task. What might be a better approach would be to promulgate some guidelines that speak to the area of investment objective within the annuity context.
Third, is the issue of training. The product manufacturers could be helpful by indicating how a subaccount is to be managed. For example an account might be managed to be suitable to provide income with growth as a secondary objective. Thus the customer and the rep would have a better idea of whether a particular account would likely meet the customer needs. The training area goes along with the fourth concern which has to do with disclosure.
The material that goes to both the Rep and the prospective customer has to be easier to understand. The customers have the material available, but their eyes glaze over when the Rep hands them a 200 page prospectus document.
Also a final thought about regulatory philosophy. I would think that most Reg. Reps. and virtually all regulators know what a Ponzi scheme is. Most investors would probably agree with the idea that if a deal seems too good to be true, IT PROBABLY IS. Yet Ponzi schemes continue to be devised to separate willing members of the public from their money. My point is that certain people are crooks and the best that can be done is to catch and jail them and get as much restitution back to victims as possible. No amount of law will prevent determined crooks from stealing.
For Reg. Reps. who wish to serve the public and operate in good faith, training should be thorough and comprehensive for the products that they will deliver. Regulation should be as light as possible in order to deliver the product to the public as efficiently as possible. Regulations need to be clear enough that a good faith effort to follow the rules will keep the Reg. Rep. from breaking the law. Excessive regulation does no one any good. Regulations that are not clearly stated are not helpful to the buying public and can be very harmful to the professional in the field. The regulators job is to protect the public. Reg. Reps. are members of the public, too.
Disclosure should be adequate for non-professionals to be able to make an informed decision and should be simple enough in nature that the customer is encouraged to read it.
Thank you for your attention.