(The news featured below is a selection from the news covered in Federal Securities Law Reporter, which is distributed to subscribers of Federal Securities Law Reporter.)

Nazareth Outlines Regulator Concerns With Variable Annuities

In recent remarks to the Financial Services Institute, Commissioner Annette Nazareth discussed the reasons for regulators' focus on variable annuity products and so-called "529 plans" for college savings. There are few products that have resulted in more investor complaints than variable annuities, she explained, and their complexity raises heightened concerns about investor protection.

Ms. Nazareth noted that the NASD's proposed Rule 2821 would establish specific requirements, including a suitability obligation, for broker-dealers that sell variable annuities. The proposed rule would codify the NASD's best practice guidelines. Commissioner Nazareth reported that the NASD has twice amended its proposal in response to extensive public comments. She expects the SEC to consider the proposal in the near future.

Adviser and Broker-Dealer Study

Ms. Nazareth also spoke before the IA Week conference in New York City where she reviewed the SEC's investment adviser and broker-dealer study that will address the blurring of the distinction between their services. After fixed commission rates were eliminated for brokers in the 1970s, Ms. Nazareth said the nature of broker-dealer services did not change. Brokers continued to provide investment advice that was incidental to brokerage as they always had, but were compensated under a different structure. In Ms. Nazareth's view, compensation structures should not define how an entity is treated for regulatory purposes. 

The commissioner said that broker-dealers should have incentives to provide the highest quality investment service without the risk that it will subject them to another regulatory regime. To the extent that there are differences in the regulatory schemes for investment advisers and broker-dealers, Ms. Nazareth said the study will provide an opportunity to fill in the gaps.

Ms. Nazareth said her principal concern is that investors should receive equivalent legal protections and consistent disclosure for fundamentally similar financial services. She hopes the study will examine investor communications on issues such as the nature of the accounts, the scope of the financial service provider's duties, and the information that is provided about the products and strategies. The study should also look at the disclosure about potential conflicts of interest related to the products, compensation or the financial consultant's affiliations, in her view.