WASHINGTON - With equity index annuities (EIAs) growing in popularity, particularly through the bank channel, they have again come into the spotlight with securities regulators.
At the Regulatory Affairs and Compliance Conference earlier this week, sponsored by the
"We don't know if they are a security yet, but brokers are selling them," said Thomas M. Selman, SVP, investment companies/corporate financing at NASD Regulation. "It's not just a regulator issue but concerns private actions."
A copy of a draft of the notice to members has circulated unofficially but relatively widely in the industry. "The absence of firm supervision of the marketing and sale of unregistered EIAs by associated persons could harm the broker/dealer's customers," the draft reads.
The NASD is proposing that broker/dealers treat EIAs as if they were securities in their compliance operations. Not doing so presents a great risk to carriers, should the
"Firms can turn a blind eye and hope they don't get sued or take responsibility for it," Selman warned the audience. "We didn't create this situation."
Selman described a recent complaint involving a 94-year-old woman and her 91-year-old husband. An insurance agent recommended that the pair liquidate $800,000 in fixed income savings, the bulk of their assets, in order to buy an EIA with a 14-year surrender charge. Selman said that another remarkable aspect of the case was that the complaint was filed with the registered representative who was managing the fixed income portfolio, not the customers.
Put Reps on EIA Alert: NASD
For now, the NASD is primarily proposing that the broker/dealers monitor securities-licensed representatives for EIA-related sales issues.
" Firms should advise their registered representatives that they may not sell an unregistered EIA unless the associated person has notified the firm in writing that he intends to recommend a particular unregistered EIA, and has received the firm's written confirmation that the sale of the EIA is acceptable," the draft reads. "Firms should maintain a list of approved EIAs and prohibit their associated persons from selling any other EIA."
