FINRA Asks Members to Check RILA Disclosures
What You Need to Know
FINRA has been talking about addressing RILA contracts for several years.
The RILA item is part of the variable annuity section in the new FINRA exam priorities report.
The exam report also includes two new questions and two new findings related to variable annuities.
The Financial Industry Regulatory Authority says financial firms should be ready to show examiners what they tell investors about registered index-linked annuities.
The Washington-based organization has added a line about RILAs to the variable annuity section in a report on its examination and risk monitoring priorities for 2023.
“If your firm offers registered indexed-linked annuities (RILAs), do the products’ disclosures address buffer and cap rates, as well as market value adjustment risks?” FINRA asks in the new “related considerations” item.
What It Means
Many life insurers like issuing RILA contracts, and some clients like buying them. Now, FINRA likes the idea of including them in examinations of member firms.
RILA Basics
A RILA is an annuity with returns tied to the performance of an investment index that is registered with the U.S. Securities and Exchange Commission as a variable annuity contract.
Because a RILA is registered with the SEC, the issuer can expose the contract holder to potential index-related loss of contract value.
A RILA is usually designed in such a way that the base contract provides a limited amount of protection against loss value through a mechanism such as a “buffer,” or specified percentage of value loss that the issuer will absorb, or “floor,” or a predetermined minimum level for the contract value, if the investment index falls dramatically and the issuer can make good on the contract guarantees.
When a contract holder pulls cash out early, an issuer might apply a “market value adjustment,” or reduction in contract value, based on index returns and other factors.
