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FIRMA NATIONAL RISK MANAGEMENT TRAINING CONFERENCE BDIA HOT TOPICS APRIL 29, 2009 9:15 AM – 10:15 AM. FINRA’s 2009 Examination Program. Areas of Focus. Sales Practice Issues. Cash Alternatives Sales of Securities in a High Yield Environment. Senior Investors.

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Firma national risk management training conference bdia hot topics april 29 2009 9 15 am 10 15 am


Sales Practice Issues

  • Cash Alternatives

  • Sales of Securities in a High Yield Environment


Senior Investors

Protection of Senior Investors and Baby Boomers is a FINRA Priority

  • A growing number of our nation’s investors are at or near retirement age

  • 75% of the nation’s consumer financial assets are held by someone who is 50 or order


Senior Investors – Sales Seminars

  • Securities regulators have been concerned with the use of “free lunch” sales seminars

  • SEC, NASAA and FINRA conducted a joint sweep


Senior Investors – SEC, NASAA, FINRA Sweep Findings

Of all examination conducted, the finding were:

  • 5 or 4 % found no problems or deficiencies.

  • 63 or 57% found that firms used advertising and sales materials that may have had misleading

  • 59% found indications that firms had poorly supervised sales seminars

  • 23% found indications of unsuitable recommendations

  • 13% found indications of possible fraudulent practices


Senior Investor – Best Practices

Best Practices Identified in the Sweep

  • Centralizing the process

  • Timeframes for supervisory review and approval

  • Home office review and approval prior to use

  • Seminar guest speakers to be reviewed and approved


Senior Investor – Best Practices

Best Practices Identified in the Sweep

  • Two levels of supervisory approval

  • Written Guidance

  • Branch Managers attend seminars

  • Marketing materials created at a central level


Senior Investors–Rule Considerations NASD Rule 2210

  • Broker-Dealers must provide certain sales material to FINRA

  • Advertisements and sales literature concerning mutual funds and variable annuities must be submitted for review within 10 business days of first use or publication (NASD Rule 2210(c)(2)(A)).


Rule Considerations: NASD Rule 2210 (b) and NASD Rule 472 (d)

  • Sales literature must be approved by a registered principal prior to the seminar

  • Firm must maintain all sales literature in a separate file for three years

  • File must include the name of the registered principal that approved the seminar

  • Broker-dealer must also maintain information concerning the source of any illustrative data


Rule Considerations: NASD Rule 2310 and NASD Rule 2821 (d)

  • NASD Rule 2310 requires that a member shall have reasonable grounds for believing that a recommendation is suitable

    Regulatory Notice 07-53

  • New NASD Rule 2821 regarding broker-dealers' compliance and supervisory responsibilities for deferred variable annuities.

  • Effective Date: May 5, 2008


Resources (d)

  • Online Workshop

    Compliance Practices to Protect Senior Investors

    at / Education Programs

  • E-Learning Course

    Senior Investor Suitability Considerations

    at / Education Programs

  • Report of Examinations of Securities Firms Providing “Free Lunch” Sales Seminars at / Reports

  • Senior Investors Regulatory Notice 07-43


Variable annuities
Variable Annuities (d)

A contract promising periodic payments (annuitization)

Variable rate of return


Tax-deferred treatment of earnings

Death benefit

Annuity payout options

Living benefits

Accumulation phase

Distribution phase

Deferred versus immediate annuities



Applicable rules
Applicable Rules (d)

General suitability rule (NASD Rule 2310)

Supervision and supervisory controls (NASD Rules 3010 and 3012)

Deferred variable annuities (NASD Rule 2821)

Paragraphs (a), (b) and (e) are effective May 5, 2008

Effective date of NASD Rule 2821 paragraphs (c) and (d) have been deferred



Nasd rule 2821
NASD Rule 2821 (d)

Applies to purchase and exchanges

Does not cover sales or surrenders

Applies to purchases to fund IRAs

Does not apply to purchases in employer-sponsored plans, unless recommendation made to an individual plan participant

Four main requirements:

Recommendation requirements

Principal review and approval

Firm supervisory procedures

Firm training program



Registered representative responsibilities
Registered Representative Responsibilities (d)

Reasonable basis to believe that purchase or exchange is suitable, based on:

Customer has been informed of material features

Customer would benefit from one or more features

Annuity as a whole is suitable; underlying subaccounts, and any riders or similar product enhancements are suitable

Document and sign determinations

Reasonable efforts to obtain and consider customer information, including:

Customer’s age, income, financial situation, needs, investment experience, investment objectives, intended use of the deferred variable annuity, existing assets, liquidity needs, liquid net worth, risk tolerance, tax status, investment time horizon



Added responsibility if recommending an exchange
Added Responsibility If Recommending An Exchange (d)

Consider implications of

Surrender charges

New surrender period

Loss of existing benefits

Fees or charges

Consider benefits from product enhancements and improvements

Consider any previous exchange within last 36 months



Registered principal responsibilities
Registered Principal Responsibilities (d)

Review each purchase and exchange application before sending to insurance company for processing

Effective date extended

These provisions may change



Broker dealer firm responsibilities
Broker-Dealer Firm Responsibilities (d)

Supervisory procedures

Procedures reasonably designed to achieve compliance with rule

Surveillance procedures to identify high volume of exchanges

Procedures to address and correct non-compliant exchanges

Automated supervisory systems may be used

Training requirement

For reps who sell deferred variable annuities

For registered principals who review transactions

Must cover material aspects of deferred variable annuities



Finra training resources
FINRA Training Resources (d)

Variable Annuities: Principal Review (webcast or e-learning)

Variable Annuities: Suitability Issues (webcast or e-learning)

Variable Annuities: Sales Practice Issues for 1035 Exchanges (e-learning)

Variable Annuities: Suitability and Disclosure for New Products (e-learning)

Variable Products: Suitability, Disclosure and Supervision (1-day course)

See for more information




Questions? (d)