The Securities and Exchange Commission (SEC) introduced a proposal this week that would modernize the process of disclosing information about variable annuities.
The proposal calls for a layered disclosure approach designed to provide investors with vital information relating to the contract’s terms, benefits, and risks in a concise and more reader-friendly presentation. Additionally, access to more detailed information available online and electronically or in paper format on request.
It is an idea that the Insured Retirement Institute has long championed.
“This has been a top priority for our industry for ten years,” Cathy Weatherford, president and CEO at IRI, said. “Consumers should receive useful information about the products that they buy, but the amount of currently required information in a typical prospectus is so complex and overwhelming that few consumers even read it. That helps no one.”
IRI would also like to see the SEC permit the use of a summary prospectus for variable annuities. Full prospectuses for variable annuity products can range from 150 to 300 pages and contain language that most ordinary investors would find difficult to understand. Thus, only about 3 percent of investors say they always read some part of the prospectus.
“A variable annuity summary prospectus is consistent with the Commission’s move towards layered disclosure,” Weatherford noted. “This approach is designed to give investors the discretion to choose how much information to review and how to view it. It would provide investors only the essential information, while still providing investors access to more detailed information online or in hard copy, at the investors request.”
IRI would like to see investors get summary prospectuses for variable annuity products with full prospectus available online.
“We are greatly encouraged by this action and will be scrutinizing the SEC’s proposed rule very carefully and will provide input into the rulemaking process,” Weatherford said. “We are grateful to SEC Chairman Jay Clayton for establishing this action as a priority and following through with this proposal.”