The Securities and Exchange Commission said it is now working on developing a rule to allow use of variable annuity summary prospectuses, which are short documents that highlight the policy’s key features in simple English and graphical format.
During a speech in New York last week, David W. Grim said his division is “beginning work” on such a rule. The deputy director of the Division of Investment Management at the Securities and Exchange Commission (SEC) was delivering the remarks of Division Director Norm Champ.
Disclosure for variable annuity products is often long and difficult to understand, Grim said in referencing the full prospectuses that the SEC now requires to be given to variable annuity buyers.
Many full prospectuses run 100 or more pages long. They contain copious amounts of detailed information on the annuity, the subaccounts, the company, key risks, fees and expenses, performance and more.
“Our goal is to facilitate the communication of concise, user-friendly information to investors considering variable annuities and enhance the transparency of the benefits, risks, and costs of these products,” Grim said in the published text of Champ’s remarks before the Investment Management Institute 2013.
Grain of salt?
SEC leaders have repeatedly made public statements in the past few years that the Commission would start work on such a rule, so some industry professionals may take the news with the proverbial grain of salt.
As recently as early November 2012, Champ told a Washington conference on life insurance products that consumers responding to a SEC literacy study liked the features of a similar type of summary prospectus—the one the SEC approved for use with mutual funds in 2009.
The study “provides grounds for optimism” that a variable annuity summary prospectus, “if designed and implemented effectively,” could provide better disclosure for investors in those products, Champ said back then.
The difference this time around is that, in early March, Grim-speaking-on- behalf-of-Champ said the work of the variable annuity summary prospectus is “beginning.”
If so, the Insured Retirement Institute (IRI) will be glad to hear it. The Washington trade group has long championed use of variable annuity summary prospectuses and, for the last several years, has urged the SEC to adopt a rule permitting creation and use of those documents. The IRI, along with many advisors, have repeatedly pointed out that the majority of customers do not even read the much longer full prospectuses.
Grim did not give any indication of when the SEC expects to have a rule for variable annuity summary prospectuses ready to go.
The mutual fund summary prospectuses, upon which the variable annuity summary prospectus will likely be modeled, contains “key information about fund investment objectives and strategies, risks, and fees and provides the ability to ‘click’ through” or request more detail for those who want it,” Grim noted.
© Entire contents copyright 2013 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.