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Once again, the SEC's Office of Compliance Inspections and
Examinations (OCIE) has made variable insurance products an exam
priority.
The SEC announced this priority on February 7 in a 10-page
booklet of OCIE's 2018 priorities that was at least twice as
long as the booklets for the last four years. However, the
additional length doesn't shed much more light on OCIE's
precise interest in variable insurance products. Generally, OCIE
says it will conduct exams of "investment advisers and
broker-dealers that offer services and products to investors with
retirement accounts." More specifically, OCIE says it
"will focus on ... sales of variable insurance
products."
For 2012 and the following years, OCIE announced that variable
insurance products — or, at least, variable annuities —
were an exam priority. The only exception was for 2015.
Regarding variable insurance products, OCIE's focus has
shifted over the years. For 2012, OCIE said it was interested in
"growth in variable insurance product assets and the emergence
of new channels of distribution." In 2013, the focus was on
"the growing use of alternative and hedge fund investment
strategies in ... variable annuity structures."
In 2014, OCIE was concerned about life insurance company
"buybacks" of variable annuities. It examined
"whether registered representatives are recommending that
customers accept the buyback terms and, if so, whether such
recommendations are suitable and what types of disclosure are made
to the customer."
In 2016, OCIE examined "the suitability of sales of
variable annuities to investors (e.g., exchange recommendations and
product classes) as well as the adequacy of disclosure and the
supervision of such sales." Similarly, in 2017, OCIE reviewed
"registrants' recommendations and sales of variable
insurance products."
Looking back, OCIE has principally been interested in the
distribution of variable insurance products, particularly
suitability of recommendations and disclosure of pertinent
information. However, OCIE hasn't identified any dominant
concern, much less undertaken any enforcement initiative.
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