NASD to Take Close Look at Sales Contests

NASD is considering tightening the noose on sales contests, since current rules may not adequately protect investors, according to Dow Jones Newswire.

"We're looking at the scope of our contest rules," said Elisse Walter, executive vice president for regulatory policy at NASD. She added that regulators are concerned about unsuitable sales, especially since the guaranteed income from variable annuities can be a very attractive lure for seniors.

Right now, NASD allows sales contests for trips and other non-cash compensation - and doesn't require brokers to disclose such contests to investors - as long as they are based on a type of security or annuities, don't involve the sales of a particular manufacturer's products and involve the suitable sale of a product.

For example, Merrill Lynch ran a contest for a February 2004 trip to Lake Tahoe, which the insurers which provided the annuities, helped share the cost.

NASD currently has a proposal before the Securities and Exchange Commission that would beef up disclosure and suitability requirements. In addition, a number of state regulators, including those in Massachusetts, New York and California, are considering new requirements of their own.

Calling such contests a "conflict of interest," attorney Ron Marron, who is spearing several lawsuits against brokers and insurers, attested: "Under current law it might be legal, but it's certainly not ethical."