The Securities and Exchange Commission (SEC) issued a long-awaited final rule March 11 to streamline the disclosure of essential information about variable annuities and variable life insurance contracts.
The changes permit the use of a concise, reader-friendly prospectus designed to improve investors’ understanding of the contracts’ features, fees, and risks. The framework’s use of layered disclosure and technology will provide investors with a roadmap so that they can more easily access information that they need to make an informed investment decision. The SEC said in a statement that the changes are an important milestone in the Commission’s ongoing efforts to improve the investor experience.
“The Commission is taking this important step to improve Main Street investors’ understanding of these products,” said SEC Chairman Jay Clayton. “With today’s technology and the benefits of layered disclosure, investors should not have to work through hundreds of pages of disclosure to understand these products’ risks, fees, and features in order to make informed investment decisions. I applaud the Division of Investment Management for their continuing efforts to improve the investor experience.”
The new rule permits variable annuity and variable life insurance contracts to use a summary prospectus to provide disclosures to investors. A summary prospectus is a concise, reader-friendly summary of key facts about the contract. More detailed information about the variable annuity or variable life insurance contract will be available online, and an investor can choose to have that information delivered in paper or electronic format at no charge.
The new framework builds on the Commission’s experience with a similar layered disclosure approach for mutual funds – with investors able to receive a summary prospectus and access more-detailed information online and upon request – since 2009.
To implement the improved disclosure framework, the Commission adopted amendments to the registration forms and related rules for variable annuity and variable life insurance contracts.
Variable annuities and variable life insurance contracts may begin using the modernized layered disclosure approach as early as July 1, 2020.
The Insured Retirement Institute (IRI) called the action a “major leap forward” to provide investors with more easily digestible and navigable information about important retirement financial products.
IRI initiated the call for a summary prospectus a decade ago and led the effort to make variable annuity disclosures more consumer-friendly while still maintaining access to additional information, if requested. IRI said in a statement on March 11 it is reviewing the final rule.
“This is a major leap forward in the ability to provide consumers with information they need to make educated investment decisions about financial products that can be essential to ensure a secure and dignified retirement,” said Jason Berkowitz, IRI chief legal and regulatory affairs officer.
“We are carefully scrutinizing the final rule with our members to fully understand its ramifications and to ensure that it allows for a more rational disclosure of important consumer information versus today’s required book-length paper versions delivered by U.S. mail,” Berkowitz said. “We are deeply appreciative of the Commission’s thoughtful and inclusive process in this rulemaking.”