The issue involves a new proposed rule that would require broker-dealers to present mutual fund and variable contract customers with a confirmation statement that contains information about distribution-related costs. These disclosures, the SEC says in its proposal, would promote more informed decision-making by investors.
Currently, the confirmation rules apply to purchases of shares of stock. But Wilkerson notes that the confirmation rules have not been applied to variable products because these are long-term accumulation products.
In addition, SEC also is proposing a new point-of-sale disclosure rule that would require broker-dealers to provide a document to customers about costs and conflicts of interest.
While the confirmation disclosure requirement would not take effect until after a transaction has been completed, the point-of-sale disclosure would specifically require that investors be provided with the information prior to sale, SEC says.
But Wilkerson says the new proposal risks inundating consumers with too much information, especially in light of the information available in the newly streamlined variable product prospectus.
Moreover, he notes, the National Association of Securities Dealers already has dealt with the issue of disclosure of both cash and non-cash compensation.
Wilkerson adds that variable products are different from mutual funds and other investment products in that they are also subject to state insurance laws. State laws, he notes, provide consumers with a free-look period and the right to cancel a transaction.
Thus, variable product consumers have more time to re-evaluate a purchase if they dont understand the fees and charges, he says.
Reproduced from National Underwriter Edition, April 2, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.
