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Variable annuities: earmarked for close regulatory scrutiny

Alas, the variable annuity. Seemingly, it is at once a utilitarian and respected financial offering and also a vilified product. Good and bad. Sweet and sour.

And decidedly in the crosshairs of officials from the federal Financial Industry Regulatory Authority, the primary legal enforcer overseeing the securities industry.

A recent media focus on concerns regarding variable annuities offered to retirees notes that those financial products "exist at a nexus that Finra targets."

If it is not immediately apparent what that means, elucidation is provided in the recent comment of a Finra principal delivered to an audience at an insurance industry forum.

Variable annuities, said Finra enforcement chief counsel James Day, "are at the sweet spot of complex products marketed to retirees and people about to retire."

We alluded to that in a recent blog post, although not exactly in those words. Our May 10 entry traced the adverse spotlight shining upon insurer MetLife relating to offerings of new and complex annuity products to elderly customers. As evidence of just how complex such offerings can be, MetLife was fined a whopping $25 million not for any overt improprieties engaged in by its agents but, rather, for their evident failure in understanding the products themselves.

Day and other Finra principals say that variable annuities will continue to be a strong focal point of scrutiny for the authority, given their potential to be unsuitable and highly priced investments for some consumers.

Russ Ryan, a Finra senior vice president, told audience members at the above-cited conference that individuals evaluating variable annuities need to be "more vigilant [and] a little more skeptical" in reviewing those products.

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