The Securities and Exchange Commission has approved a rule from the Financial Industry Regulatory Authority that would crack down on abusive sales of deferred variable annuities, particularly to senior citizens.
While the rule applies to all investors, the SEC is looking to protect older investors because investments like deferred variable annuities are often marketed to senior citizens at "free lunch" investment seminars offering them advice on securing their retirement. The SEC examined 110 securities firms and branch offices that offered the seminars and found most of them to be sales presentations, often featuring exaggerated or misleading claims. The SEC and the state of Hawaii have already charged one company, Senior Resources of Hawaii, and its owner with securities fraud.
The rule imposes a suitability obligation to make sure the deferred variable annuity makes sense for the customer. It also requires the principals to review transactions before a customer's application is forwarded to the issuing insurance company for processing. In addition, FINRA members have to establish supervisory procedures to comply with the standards in the rule.
The rule requires FINRA members to develop and document training policies or programs for salespeople to make sure they understand the rule and the features of deferred variable annuities. On top of the FINRA rule, the SEC also required FINRA members to hold customer funds no more than seven business days while they complete the principal review.
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