Press Release: SEC Approves FINRA Rule Governing Sales Practices of Deferred Variable Annuities
In September 2007, the SEC approved a new FINRA rule to combat abusive sales practices in deferred variable annuities—particularly targeting seniors through deceptive 'free lunch' seminars—by mandating suitability standards, principal reviews, supervisory procedures, and training, without imposing fines or naming specific fraudsters.
The SEC approved a FINRA rule on September 7, 2007, to enhance sales practices for deferred variable annuities by requiring suitability assessments, pre-transaction principal reviews, written supervisory procedures, and mandatory training for sales personnel. Although the rule applies to all investors, it was driven by concerns over widespread financial fraud targeting seniors, including through 110 examined firms offering deceptive 'free lunch' investment seminars. No monetary penalties or enforcement actions were taken; the action was purely regulatory, aimed at prevention, with a temporary exemption allowing firms to hold customer funds up to seven business days without triggering full capital requirements under Rule 15c3-3.
On September 7, 2007, the SEC approved a new FINRA rule designed to reform sales practices for deferred variable annuities, responding to growing concerns about financial fraud targeting older investors. The rule mandates four key requirements: suitability tailored to annuity features, principal review of transactions before customer applications are submitted, written supervisory procedures to ensure compliance, and documented training programs for sales staff. While the rule applies broadly, it was particularly motivated by abusive practices against seniors, including deceptive 'free lunch' seminars, as evidenced by regulatory examinations of 110 firms released concurrently at the SEC’s second annual Seniors Summit. The SEC did not impose fines, name specific firms or individuals, or pursue enforcement—this was a preventive regulatory measure, not a punitive one. To facilitate compliance with the new principal review requirement, the SEC granted a temporary exemption allowing broker-dealers to hold customer funds for up to seven business days without becoming fully subject to Exchange Act Rules 15c3-3 and 15c3-1, which would have required higher net capital reserves. The rule reflects a strategic shift toward systemic oversight rather than reactive punishment, aiming to curb fraud before it occurs. The SEC emphasized coordination with community organizations and regulators to better educate seniors and protect them from investment fraud. The full text of the rule and exemption order were made publicly available on the SEC’s website for industry compliance.
Exhibits & Attached Documents (2)
Extracted insights
- agency finra rule governing sales practices of deferred variable annuities
- agency on the sec web site at www.sec.gov
- agency Securities and Exchange Commission
- agency the proposed finra rule
- agency the sec's seniors summit
- SEC Approves FINRA Rule Governing Sales Practices of Deferred Variable Annuities
- SEC Issued an exemptive order allowing FINRA members to hold customer funds for no more than seven business days
- The Commission Released findings from regulatory examinations of 110 firms offering 'free lunch' investment seminars aimed at seniors
- The SEC's Seniors Summit Will Be Webcast Live on the SEC Web site at www.sec.gov
- The event Will Examine how regulators, community organizations, and others can increasingly coordinate efforts to educate older Americans and protect them from abusive sales practices and investment fraud
- The Commission Approved the proposed FINRA rule
- The Commission Granted Exemptions from Rules 15c3-1 and 15c3-3 under the Securities Exchange Act of 1934
SEC Approves FINRA Rule Governing Sales Practices of Deferred Variable Annuities FOR IMMEDIATE RELEASE 2007-178 Washington, D.C., Sept. 10, 2007 - On September 7, the Securities and Exchange Commission approved a new Financial Industry Regulatory Authority (FINRA) rule that is intended to enhance broker-dealer sales practices with respect to purchases and exchanges of deferred variable annuities. The rule has four primary components. First, it imposes a suitability obligation tailored to the characteristics of deferred variable annuities. Second, it contains standards for principal review and requires principals to review transactions before the customer's application is forwarded to the issuing insurance company for processing. Third, the rule requires members to establish and maintain specific written supervisory procedures reasonably designed to achieve compliance with the standards set forth in the proposed rule. And fourth, it requires members to develop and document specific training policies or programs designed to ensure compliance with the requirements of the rule and salespersons' understanding of the material features of deferred variable annuities. The Commission also issued an exemptive order allowing FINRA members to hold customer funds for no more than seven business days while completing the required principal review under the new rule without becoming fully subject to Exchange Act Rule 15c3-3 and being required to maintain higher levels of net capital in accordance with Rule 15c3-1. While the new rule applies to sales to all investors and not just to seniors, because deferred variable annuities are often marketed to investors looking toward retirement, it has been a particular focus in the context of protecting senior investors against financial fraud. Combating financial fraud against older investors will be a focus of the Commission's second annual Seniors Summit being held today in Washington, D.C. The Summit will include the release of findings from regulatory examinations of 110 firms offering "free lunch" investment seminars aimed at seniors. The SEC's Seniors Summit will be webcast live on the SEC Web site at www.sec.gov, starting at 10:00 A.M., E.T. The event will further examine how regulators, community organizations, and others can increasingly coordinate efforts to educate older Americans and protect them from abusive sales practices and investment fraud. Registration information and other materials about the Seniors Summit are available at: http://www.sec.gov/spotlight/seniors/seniors_summit.htm. The Commission's order approving the proposed FINRA rule is available on the Commission's web site at http://www.sec.gov/rules/sro/nasd/2007/34-56375.pdf. The Commission's order granting exemptions from Rules 15c3-1 and 15c3-3 under the Securities Exchange Act of 1934 is available on the Commission's web site at http://www.sec.gov/rules/exorders/2007/34-56376.pdf. http://www.sec.gov/news/press/2007/2007-178.htm Home | Previous Page Modified: 09/10/2007
SEC Approves FINRA Rule Governing Sales Practices of Deferred Variable Annuities FOR IMMEDIATE RELEASE 2007-178 Washington, D.C., Sept. 10, 2007 - On September 7, the Securities and Exchange Commission approved a new Financial Industry Regulatory Authority (FINRA) rule that is intended to enhance broker-dealer sales practices with respect to purchases and exchanges of deferred variable annuities. The rule has four primary components. First, it imposes a suitability obligation tailored to the characteristics of deferred variable annuities. Second, it contains standards for principal review and requires principals to review transactions before the customer's application is forwarded to the issuing insurance company for processing. Third, the rule requires members to establish and maintain specific written supervisory procedures reasonably designed to achieve compliance with the standards set forth in the proposed rule. And fourth, it requires members to develop and document specific training policies or programs designed to ensure compliance with the requirements of the rule and salespersons' understanding of the material features of deferred variable annuities. The Commission also issued an exemptive order allowing FINRA members to hold customer funds for no more than seven business days while completing the required principal review under the new rule without becoming fully subject to Exchange Act Rule 15c3-3 and being required to maintain higher levels of net capital in accordance with Rule 15c3-1. While the new rule applies to sales to all investors and not just to seniors, because deferred variable annuities are often marketed to investors looking toward retirement, it has been a particular focus in the context of protecting senior investors against financial fraud. Combating financial fraud against older investors will be a focus of the Commission's second annual Seniors Summit being held today in Washington, D.C. The Summit will include the release of findings from regulatory examinations of 110 firms offering "free lunch" investment seminars aimed at seniors. The SEC's Seniors Summit will be webcast live on the SEC Web site at www.sec.gov, starting at 10:00 A.M., E.T. The event will further examine how regulators, community organizations, and others can increasingly coordinate efforts to educate older Americans and protect them from abusive sales practices and investment fraud. Registration information and other materials about the Seniors Summit are available at: http://www.sec.gov/spotlight/seniors/seniors_summit.htm. The Commission's order approving the proposed FINRA rule is available on the Commission's web site at http://www.sec.gov/rules/sro/nasd/2007/34-56375.pdf. The Commission's order granting exemptions from Rules 15c3-1 and 15c3-3 under the Securities Exchange Act of 1934 is available on the Commission's web site at http://www.sec.gov/rules/exorders/2007/34-56376.pdf. http://www.sec.gov/news/press/2007/2007-178.htm Home | Previous Page Modified: 09/10/2007