WASHINGTON — Provisions within a proposed rule from the National Association of Securities Dealers on responsibilities regarding deferred variable annuities may be unwarranted, CUSO Financial Services, L.P. recently said.
At issue is a NASD rule that would impose specific sales practice standards and supervisory requirements on NASD members for transactions in deferred variable annuities including governing recommendations, principal review and approval obligations.
CFS said the proposal may not be needed because NASD's current 2310 rule "provides satisfactory suitability standards for all other products except a few high-risk products." The credit union-owned broker-dealer questioned how suitability will be determined if "reasonable" efforts are made to obtain information about the customers' existing investment and life insurance holdings.
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NASD has also proposed prohibiting members from recommending the purchase or exchange of a variable annuity to a customer unless, among other things, it has a reasonable basis to believe that the customer has been informed of specific product features. CFS questioned what other disclosures beyond the prospectus would be required.
"CFS fears that the Proposed Rule as drafted will ultimately harm customers by raising the barriers to their sale such that [variable annuities] become less available to those who could benefit from them as legitimate tax-deferred savings and retirement planning tools," wrote Peter Vonk, CFS senior vice president/COO in a July 14 letter.
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