FINRA's New Rules Regarding Annuity Suitability


Last year, this blog discussed FINRA’s new suitability guidelines taking effect in the United States.  These coincide with NAIC suitability guidelines in working to protect consumers from unethical sales of annuities.  Minnesota is the latest state to adopt these guidelines, according to Maria Wood from Life Health Pro.  In “Minnesota adopts NAIC model annuity law,” Minnesota is the 31st state to start using the NAIC’s 2010 Suitability in Annuity Transaction Model.  The governor did not sign the law, but did not veto it either.  Under this new HF 791 law, which is similar to the NAIC model without being exact, consumers will be more protected from unsuitable annuity products.  Standards are clearer and there is greater review and supervision of unsuitable annuities.  This is a winning combination for consumers.


FINRA’s new suitability rules hope to make Americans even safer when investing.  In less than a week, two new FINRA rules go into effect, Rule 2111 and Rule 2090.  According to LifeHealthPro’s Maria Wood, the rules have been more than a year in the making.  In “New FINRA Suitability Rule to Take Effect July 9,” Wood explains that in combination these new rules are combining some previous regulations from the NASD and NYSE, with some important added items.  Suitability standards for securities have been in the news a lot over the past few years, partly because of organizations arguing about what is in fact a security product.  The NASD and NYSE regulations pertain to broker-dealers selling securities like variable annuities, equities, mutual funds, and fixed income products.

There are significant additions to prior regulations included in FINRA’s new rules.  Broker-dealers and advisors now have more factors to use when determining if a particular investment is suitable for a client.  They must now also look at the age, their prior experience investing, their risk tolerance, any need for liquidity, and the length of time they will likely invest.  The entire investment strategy of each person also needs to be closely considered now.  While a certain variable annuity product might not qualify as suitable on its own, once the entire investment strategy is considered that product might fit just right.  Some broker-dealers are concerned with the broad regulations and would like something more concrete.  They even go as far as to worry that there will be less communication with clients if the entire investment strategy must always be discussed.

But others aren’t as concerned with FINRA’s new suitability guidelines and stress that they have continued to release more detailed information regarding their paperwork and other requirements.  There will not likely be significant changes in the way that annuities are sold or how many are sold because of Rules 2111 and 2090.  One analyst said that the additional required information can be collected from clients in just a few minutes and although it may be an annoyance, it won’t significantly change the way they operate.  Time will be the determining factor as to the success of these new rules and whether they work to offer more protection to consumers as planned.  As broker-dealers have questions, FINRA will work hard to answer them and make everything clear.

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