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[20211]
July 21, 2006
TO: SEC RULES MEMBERS No. 64-06
VARIABLE INSURANCE PRODUCTS ADVISORY COMMITTEE No. 8-06
RE: INSTITUTE LETTER ON NASD PROPOSAL RELATING TO DEFERRED VARIABLE
ANNUITIES
The Institute has filed a comment letter with the Securities and Exchange Commission on
amendments to a proposed rule change filed by NASD relating to sales practice standards and
supervisory requirements for transactions in deferred variable annuities.1 The most significant aspects
of the letter are summarized below and a copy of the letter is attached.
The letter reiterates the Institute’s support for the goal of NASD’s proposed Rule 2821 - to
address problems relating to sales practices in the area of deferred variable annuities. Nevertheless, the
letter states that NASD’s proposal sets a bad precedent and may prove unworkable. Most significantly,
by establishing a separate regulatory framework for one particular investment product, NASD’s
approach could lead to the adoption of separate and distinct suitability rules for other complex
products, complicating compliance efforts of broker-dealers. The letter also states that it is
questionable whether a separate rule is necessary to accomplish NASD’s goals.
The letter notes that the Institute is pleased that NASD’s amendments to the proposal made
several changes to the proposed requirements relating to recommendations of deferred variable
annuities. However, the letter continues to express concerns relating to the proposed principal review
requirements, especially in situations where a transaction is not recommended. The letter therefore
recommends that NASD not apply the proposed principal review requirements in such situations and,
whether applied only to transactions involving a recommendation or more broadly, that NASD provide
1 SEC Release No. 34-54023 (June 21, 2006), 71 FR 36840 (June 28, 2006) (“Release”). The Release can be found on the
SEC’s website at http://www.sec.gov/rules/sro/nasd/2006/34-54023.pdf.
2
firms with flexibility to design principal review procedures that fit their particular circumstances and
business models.
Ari Burstein
Associate Counsel
Attachment (in .pdf format)
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(http://members.ici.org) and search for memo 20211, or call the ICI Library at (202) 326-8304 and request the attachment
for memo 20211.