Clients would be urged to obtain a personalized hypothetical illustration, revealing all applicable charges and fees.
The Financial Industry Regulatory Authority Inc. has released a rule proposal that would set guidelines on marketing materials for variable insurance products.
Regulatory notice 08-39 would set guidelines on illustrations — hypothetical performance samples that illustrate how an insurance product would do over a given period of time — for variable life products, requiring that published performance information also reflect the deduction of fees and charges.
Clients would be urged to obtain a personalized hypothetical illustration, which would reveal all applicable charges and fees in the prospectus, as well as the cost of the insurance.
Marketing materials would also be required to identify the type of product clearly and could not imply that a variable annuity or variable life product is a mutual fund.
These products could not be presented as short-term liquid investments.
Washington and New York-based Finra also said that the rule would force marketers to present guarantees and riders in a “fair and balanced” manner.
Member firms would be prohibited from exaggerating benefits of a guarantee or an insurance company’s financial strength or credit rating.
Any discussion of guarantees would have to disclose applicable limitations, as well as state clearly that investment returns and the principal value of an investment option are not guaranteed and will fluctuate.
Currently, the proposal is in its comment period, which will expire on Sept. 30.
