SEC PROPOSES RULE TO PERMIT SUMMARY PROSPECTUS FOR VARIABLE ANNUITIES

Posted on October 31, 2018

10-Year IRI Effort to Secure Consumer-Friendly Disclosure of Information In Home Stretch

WASHINGTON, D.C. – A decade-long effort by the Insured Retirement Institute (IRI) to seek a more rational, useful, consumer-friendly disclosure of essential information about variable annuities may be nearing an end. Yesterday, the Securities and Exchange Commission (SEC) proposed a rule to help investors make informed investment decisions regarding variable annuity and variable life insurance contracts.

The SEC proposal would modernize disclosures by using a layered disclosure approach designed to provide investors with key information relating to the contract’s terms, benefits, and risks in a concise and more reader-friendly presentation, with access to more detailed information available online and electronically or in paper format on request.

“This has been a top priority for our industry for ten years,” said Cathy Weatherford, IRI president and CEO. “Consumers should receive useful information about the products that they buy but the amount of currently required information in a typical prospectus is so complex and overwhelming that few consumers even read it. That helps no one.”

Convincing the SEC to permit the use of a summary prospectus for variable annuities is among IRI’s top issue advocacy priorities and contained in the organization’s annual Advocacy Blueprint.

Full statutory prospectuses for variable annuity products can range from 150 to 300 pages and contain language that most ordinary investors would find difficult to understand. As a result, full prospectuses are rarely used by most investors, with less than 3% of investors saying they always read some part of the prospectus.

“A variable annuity summary prospectus is consistent with the Commission’s move towards layered disclosure,” Weatherford noted. “This approach is designed to give investors the discretion to choose how much information to review and how to view it. It would provide investors only the essential information, while still providing investors access to more detailed information online or in hardcopy, at the investors request.”

The proposed new rule would permit a person to satisfy its prospectus delivery obligations under the Securities Act of 1933 for a variable annuity or variable life insurance contract by sending or giving a summary prospectus to investors and making the statutory prospectus available online.

“We are greatly encouraged by this action and will be scrutinizing the SEC’s proposed rule very carefully and will provide input into the rulemaking process,” Weatherford said. “We are grateful to SEC Chairman Jay Clayton for establishing this action as a priority and following through with this proposal.”

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Contact: Dan Zielinski