New SEC RILA Rules Accentuate the Negative, Commissioner Says

RILA issuers will have to put their front cover page a notice showing "the maximum potential loss that an investor could experience in connection with a negative contract adjustment."

"Absent necessary context, the disclosure seems designed to dissuade investors from purchasing RILAs," Peirce said. "No other securities offerings are burdened by the same disclosure."

2. Include realistic data points with respect to caps and buffers, or limits on the amount of losses a RILA absorbs and the maximum gains an investor can keep.

A RILA prospectus will have to include a bar chart showing each index's annual return, along with a hypothetical example for index return that indicates the return after applying a 5% cap and a negative 10% buffer.

Those hypothetical caps and buffers do not reflect industry practice, Pierce said.

3. Don't classify a RILA cap as a fee.

RILA investors give up some potential returns to reduce losses, Peirce said.

"That give-up is no more a fee than the downside buffer is a rebate," she said. "By characterizing these caps as 'implicit fees,' we have abandoned the plain language we demand of registrants."

4. Provide a formal transition period.

The SEC made the new requirements apply immediately because of concerns about protecting investors, "but those concerns will be addressed most thoroughly if issuers undertake careful reviews of their sales literature in light of the commission's newly applicable interpretation," Peirce said.

5. Update the SEC's overall approach to disclosures.

"Because of their features, RILAs provided a unique opportunity to try new things, like decision trees and interactive technologies, and shed old ones, like requiring issuers to file 10 copies of forms," Peirce said.

SEC Commissioner Hester Peirce. Credit: SEC