Breaking Down FINRA's Latest Guidance on Annuity Product Oversight
Weekly snippets from the Insurance Compliance Insight (ICI) Newsletter. A weekly subscription service published by an insurance compliance professional for insurance compliance professionals!
FINRA has released its annual regulatory oversight report, shining a spotlight on the booming market for Registered Index-Linked Annuities (RILAs) and ongoing oversight of variable annuity sales. With RILA sales hitting $47.4 billion in 2023—a remarkable quintupling since 2017—regulators are intensifying their focus on these more complex products.
The report highlights several key areas where firms often fall short in their compliance efforts. Many struggle with maintaining adequate written supervisory procedures, particularly around monitoring customer concentration in annuities and overseeing exchange activities. FINRA found instances where variable annuity exchanges were recommended despite being apparently unsuitable or contrary to customers' best interests, leading to increased fees, surrender charges, or loss of valuable benefits.
But it's not all cautionary tales. FINRA also outlines effective practices that firms can implement, including:
- Enhanced policies specifically for RILA recommendations
- Detailed exchange disclosure forms that clearly present the advantages and disadvantages
- Robust data collection and analysis systems
- Automated surveillance tools for reviewing annuity exchanges
Of particular interest is FINRA's focus on RILAs' "bounded return structure," which limits both potential gains and losses for investors. While this feature might seem attractive for having no explicit fees beyond surrender charges, it represents a significant tradeoff that firms must carefully explain to their clients.
For compliance officers and registered representatives alike, the message is clear: as these products grow more popular and complex, the standards for oversight and documentation are rising accordingly. Firms need to ensure their supervisory practices keep pace with market evolution while maintaining their focus on customer best interests.
Stay tuned to Currin Compliance Services for more updates and analysis of regulatory developments in the annuity space. Need help reviewing your firm's annuity compliance program? Contact us to learn how we can help strengthen your supervisory practices and documentation procedures.
