Variable Annuities Under Scrunity

SEC Notes Explosive Growth and Fee Issues, Shareholders Sue Over Fees

By John M. Baker, Esq.


Variable annuities typically do not get a great deal of attention from the SEC’s upper levels, but they were the subject of a speech by Investment Management Director Paul Roye before the National Association for Variable Annuities’ Regulatory Affairs Conference on June 5, 2000.

Roye noted that variable annuities, a niche product no longer, have experienced explosive growth of well over 2000% over the past decade, from assets of $34.7 billion at the end of 1990 to $847.9 billion in March of this year.

His speech covered a number of important issues, including bonus programs, investor education, technology issues, advertising and disclosure issues, fees and charges, and the effect of the Gramm-Leach-Bliley Act.

Roye’s speech is available online at http://www.sec.gov/news/speeches/spch379.htm

In a doubtless coincidental development, the SEC today posted an online brochure to help investors better understand the benefits, risks, and costs of variable annuities. The SEC’s press release, with a link to the brochure, is available at http://www.sec.gov/news/varann.htm

In a genuinely unrelated development, two shareholders have sued Prudential Insurance, alleging excessive fees in the company’s Discovery Select Variable Annuity. The shareholders claim that a 1.25% annual charge for the mortality and expense fee is excessive, in violation of section 26(e) of the 1940 Act.

According to SmartMoney.com, the charge is in line with the average, but some mortality and expense fees are substantially less; for example, TIAA-CREF and Vanguard charge just 0.10%.

The SmartMoney.com article is available online at http://www.smartmoney.com/smt/markets/funds/index.cfm?story=200005301


Copyright 2000, John M. Baker, Esq., Stradley, Ronon, Stevens & Young, LLP, 1220 19th Street, N.W., Suite 700, Washington, DC 20036 – (202) 822-9611- Fax (202) 822-0140 This article was originally posted to the FundLaw List, http://www.egroups.com/group/fundlaw. To subscribe to FundLaw, send a blank e-mail to fundlaw-subscribe@egroups.com


Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.