ACLI Challenges Proposed VA Suitability Rule

"The proposal does not adequately demonstrate a need for new regulations based on objective empirical data," the ACLI says in a comment letter signed by Carl Wilkerson, vice president and chief counsel, securities and litigation.

Moreover, the ACLI comment letter said, the proposed regulation approved by the NASD "does not fulfill the important SEC and statutory goals to protect both competition and investors. The SEC should not approve the NASD initiative without modifications to remedy the rules' anticompetitive impact," the letter said.

Specifically, the letter said, the NASD complaints about unsuitable VA sales account for .32% of the NASD's total disciplinary actions on average over the past 5 years. Similarly, the SEC logged 14 times as many broker-dealer complaints about equity securities as it did for VAs, and 4.5 as many mutual fund complaints compared with complaints about VAs for the 12 months ended May 31, 2004.

The NASD's proposed rule requires broker-dealers and salespersons "to have a reasonable basis to believe" that VAs are suitable investment vehicles for a customer through a 5-point evaluation process.

It also requires that the determinations be documented and signed by the salesperson and that the salesperson makes "reasonable efforts" to obtain relevant information.

It also requires the salesperson's supervisor to review the deal through the lens of several investment and cost criteria. The supervisor would have to acknowledge that the deal was evaluated in writing, and it requires broker-dealers to create and implement certain training programs designed to ensure that salespeople and supervisors understand the "material features of deferred VAs."