How Are Variable Annuities Regulated
(It's your retirement money)
Written by
Jeff Green has held a variety of sales and management roles at life insurance companies, Wall street firms, and distribution organizations over his 40-year career. He was previously Finra 7,24,66 registered and held life insurance licenses in multiple states. He is a graduate of Stony Brook University.
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Neel Lane is an independent contract paralegal who specializes in Medicaid and VA benefits. He helps people access and maximize the benefits that they're entitled to. He has over 30 years of experience in this area.
Variable annuities are a complicated mix of insurance and investments. They're tax-advantaged retirement products that are regulated by all 50 states and the federal government. Why is that important to you? Because variable annuities and the companies that sell them have to meet financial and operating standards and disclose important information to you before you invest.
Independent insurance agents are annuity professionals. Every day they help folks just like you make smart decisions.
How Are Variable Annuities Regulated?
Variable annuities are both insurance and investments. Insurance is regulated by the states, and investments are regulated by the federal government. The players are the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority, and the 50 state insurance departments.
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The Role of the SEC
The SEC regulates variable annuities under policies established by the Securities and Exchange Act of 1933 and the Investment Company Act of 1940. Each of them protects investors from fraud, conflict of interest, and misrepresentation.
Securities and Exchange Act of 1933
A variable annuity has to file a registration statement with the SEC before it can be offered for sale. A prospectus that has information important to the variable annuity consumer is part of the registration statement. That prospectus includes all fees, investment options, and features.
The SEC approves the registration statement, but doesn't approve or disapprove the annuity or any other investment. That's because the SEC wants to make sure investors get the information they need. It's up to the investor to decide if it's right for them.
Securities and Exchange Act of 1934
Variable annuities, like all other products registered with the SEC, must be sold through a registered broker who buys and sells securities on behalf of their customers.
Brokers dealers, like all banks and other financial institutions, hold onto their customers' money, which means they have to meet and report on all financial and operational standards. A broker dealer and their representatives' interactions and communications with the public are regulated as well by the Financial Industry Regulatory Agency (FINRA).
Investment Company Act of 1940
Investment companies invest and trade in securities with pools of money from individual investors. Each investor’s interest is represented by shares in the investment company.
This landmark investment act regulates the structure, management, and operations of investment companies. The regulations include disclosures to investors of the company’s financial condition, investment objectives, structure, operations, and fees.
Variable annuities are sold by investment companies created by the insurance company. The investment company has to register with the SEC and is held to the same standards as any other investment company.
Who Is FINRA?
The Financial Industry Regulatory Agency supervises all registered broker dealers and their representatives. FINRA is an industry self-regulating organization. It is not a government agency, but it is overseen by the SEC. All broker dealers have to be members of FINRA. FINRA creates the rules for how all broker dealers conduct their business and oversees the licensing of registered representatives.
The Role of the State Insurance Departments
Each state insurance department regulates variable annuities, the life insurance companies that sell them, and their representatives. Every variable annuity sold in a state is approved by the state insurance commissioner.
The life insurance company that sells them has to be licensed by the state and meet their regulatory standards. Variable annuities may only be sold by licensed agents who are also registered representatives of a broker dealer.
The National Association of Insurance Commissioners is the standard setting organization for state regulations. It's run by the 50 state insurance commissioners. The NAIC develops model state regulations for variable annuities and all other insurance products.
What Does It All Mean to Variable Annuity Consumers?
Variable annuities are a big part of retirement planning and they're regulated at every step. The companies that sell them have to meet financial and operational standards.
The representatives who sell them have to be licensed and supervised by their broker dealer, and the variable annuity itself has to meet the standards of the state it's sold in. Consumers have to receive information about the cost and features.
So while there is a ton of paperwork and rules to follow, it's all there to protect the consumer.
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Our independent agents shop around to find you the best coverage.
Variable Annuities and Your Retirement Plan
Variable annuities can be an important part of your retirement plan. they're a flexible and powerful financial tool, but they're not for everyone.
A professional independent insurance agents job is to make things simpler and save you time. They can help you decide if a variable annuity is right for you.
FITTING VARIABLE LIFE INSURANCE AND VARIABLE ANNUITIES INTO THE REGULATORY FRAMEWORK OF THE INVESTMENT COMPANY ACT OF 1940 Steven Roth Sutherland Asbill
Insured Retirement Institute Regulation Under Law Federal Securities
SEC Fund Disclosure at a glance
SEC.gov laws and rules
Protecting Investors A Half A Century Of Investment Company Regulation Division Of Investment Management SEC