Broker-dealers are getting ready to cope with a new rule governing deferred variable annuities (VAs) sales.
Rule 2821 by the Financial Industry Regulatory Authority Inc. was finally approved by the Securities and Exchange Commission on September 7. The rule has been in the works since 2004. The official regulatory notice, to be issued this week, gives brokerage firms six months to comply. The rule is expected to go into effect in May or June 2008.
Rule 2821 has four provisions regarding the sale of deferred variable annuities and the exchange of variable annuities. The rule places a suitability requirement on products for sales. It also makes it mandatory for principals to look at transactions within seven business days and before a customer’s application is forwarded to an insurance carrier.
Brokerage firms also must develop and document training programs for sales teams to ensure that they understand the way deferred VAs work. Supervisory procedures for staying in compliance with the new rule must be put in place.
Some industry members have expressed concern that the seven-day deadline could be difficult to honor-especially if customers delay the submission of their application. Notifying customers of any errors or gaps on their application could also delay the process.
Because many independent broker dealers work with a decentralized compliance structure, their customer applications may have to go through different processing centers-again potentially making it difficult to meet the new 7-day timeframe.
Some larger firms are planning to implement an automated compliance system to make the process run more efficiently.
Shepherd Smith and Edwards represents individual investors who have incurred financial losses because of the inappropriate actions of brokerage firms and investment advisers.
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