SEC Investor Advocate: RILAs Are Hard for Consumers to Understand
Researchers at the Securities and Exchange Commission’s Office of the Investor Advocate had a hard time getting the information they wanted to analyze registered index-linked annuities, and consumers showed little understanding of the RILA disclosures tested.
When the researchers gave 2,500 consumers who read RILA disclosures a true-and-false test, the consumers answered only 58% of the questions correctly.
The average score “is only slightly better than what we would expect if the participants were randomly guessing,” the researchers concluded in their report, which was included in a report on the advocate office’s fiscal year 2023 activities prepared for Congress.
“We rarely have examined a more complex retail investment product,” Cristina Begoña Martin, the SEC’s investor advocate, wrote in a message introducing the report. “We believe an enormous level of effort on the part of providers, regulators, and investors is needed to ensure RILAs are purchased by investors who can benefit from them.”
What it means: The advocate’s concerns about RILA complexity could end up affecting disclosures for many SEC-regulated products: The advocate suggested that the SEC’s ”historical approach to disclosures may prove insufficient, not just for RILAs, but for many highly complex financial products.”
RILAs: A RILA is an annuity that can tie the owner’s crediting rate to the performance of one or more investment indexes.
Because a RILA exposes the owner to the potential for investment-market-related loss of account value, the SEC regulates RILAs as securities.
The Testers: The investor advocate had its Policy-Oriented Stakeholder and Investor Testing for Innovative and Effective Regulation team, or POSITIER team, study RILA disclosures along with other topics, such as mutual fund visual aids.
The POSITIER team helps the investor advocate understand how investors and other people are affected by SEC policies and how they interact with the investment marketplace.
