Under the rule adopted by the commission, issuers can provide an initial summary prospectus that includes a table outlining a product’s fees, features and potential risks.

The prospectus would also include an overview of the contract and more detailed disclosures relating to fees, purchases, withdrawals and other benefits, according to an SEC fact sheet.

Such a document would be considerably shorter than current variable annuity prospectuses, which run anywhere from 150 to 300 pages.

Break down information

An initial summary prospectus would go to new customers. An updated document, which includes a description of changes made to the contract during the previous year, would go to existing investors.

If investors want to drill down on a contract, they can access a longer prospectus online through a link in the summary prospectus.

The SEC describes a summary prospectus as “a concise, reader-friendly summary of key facts about the contract.” The agency characterised as “layered disclosure” the option of using an initial summary prospectus or taking a deeper dive online.

Variable insurance products can provide an income stream in retirement and other benefits for investors. They also are complex and can come with high fees and high risk.

Decade-long wait

“The commission is taking this important step to improve Main Street investors’ understanding of these products,” said SEC chairman Jay Clayton.

“With today’s technology and the benefits of layered disclosures, investors should not have to work through hundreds of pages of disclosure to understand these products’ risk, fees and features in order to make informed investment decisions.”

The Insured Retirement Institute (IRI) and other US-based insurance industry organisations have been pushing the SEC for a VA summary prospectus for a about decade.

“This is a major leap forward in the ability to provide consumers with information they need to make educated investment decisions about financial products that can be essential to ensure a secure and dignified retirement,” said Jason Berkowitz, chief legal and regulatory affairs officer at the IRI.

““We are carefully scrutinising the final rule with our members to fully understand its ramifications and to ensure that it allows for a more rational disclosure of important consumer information versus today’s required book-length paper versions delivered by US mail.”

For more insight on North American financial planning, please click on www.investmentnews.com

It has based the potential changes on the recommendations made in the Hayne report following the Royal Commission into banking, superannuation and financial services.

The report suggested requirements for:

• Written consent to deduct, or to arrange to deduct, fees from a client account as part of an ongoing fee arrangement;
• Written consent to deduct fees from a superannuation account under an arrangement that is not an ongoing fee arrangement; and,
• Written statement that discloses advice providers’ lack of independence.

Meeting the deadline

The paper also delves into issues surrounding ongoing fee arrangements, including renewal notices and disclosure statements.

“The government proposes to introduce legislation implementing the Royal Commission recommendations from 1 July 2020,” said Asic commissioner Danielle Press.

“We are consulting on our proposals now to help provide certainty to industry as it prepares for the new requirements.

“Asic welcomes views not only from industry but from all interested stakeholders. This will help us understand any concerns that consumers, firms and trustees may have about our proposals.”

The regulator will close the public consultation on 7 April 2020 in order to meet the deadline set by the Australian government.

The Insurance Authority (IA) has published its “Draft Board of Directors’ Decision Pertinent to Regulations for Life Insurance and Family Takaful” at the end of January.

But the release was largely in line with a previous draft, known as Circular 12, effectively ignoring much of the feedback by the industry gathered since its release in early 2017.

Commission cap

The key decision by the IA is to implement a cap of 4.5% on the sale of lump sum portfolio bonds or offshore bonds, replacing a system where fees could be anything from 10-15%.

The draft also proposes an overall cap of 90% on commissions over the full term of the policy.

“This means a big drop in income for advisers,” said Philip Rose, director of Halwyn Marketing Management, a Securities and Commodities Authority (SCA)-regulated promoter of financial products and services.

Rose also noted that, under the proposed rules, indemnified commissions would be restricted to 50% of annual premium in the first year, with the rest drip fed over the term of the product. This mimics, to some extent, the situation in Singapore.

“There will be a minimum clawback period of five years. This creates a huge liability for advisers,” he told International Adviser.

Rose estimated that commissions, including the establishment fees on portfolio bonds and initial periods on regular savings plans, will drop significantly – potentially by 50% or more due to the caps.

“This will inevitably lead to casualties among advisers and firms that cannot adapt their business model to a UK RDR-style ‘service-fee-on-AuM’ (Assets under management) approach quickly enough.”

Life companies in the same boat now

For life companies, he said it meant those based outside of the Isle of Man or considering leaving it for another jurisdiction to avoid the island’s Conduct of Business Code and commission disclosure rules are now all in the same boat with regards the UAE market.

The new rules proposed by the IA also allow for a broker to act as an on-going financial adviser, separate to their role as an insurance producer or products sales person.

The draft states advisers can charge a fee for this investment advice; provided those fees are not recouped from the product offered; the customer is fully aware of them; and the fees are considered to be part of total commissions and therefore in line with the overall commission limit rules.

Tom Bicknell, a partner in the Dubai office of law firm Pinsent Masons, said the new investment adviser role would work alongside SCA’s current financial consultancy licence, which allows holders to offer the full range of financial advice.

“Perhaps the most interesting development in the draft rules is the move away from a licensing category of ‘Insurance Intermediaries’ to the more nuanced ‘Insurance Producers’ and ‘Investment Adviser’ licensing categories,” he told International Adviser.

Bicknell noted there were still questions around the qualifications and experience requirements for the Insurance Producers though he said one key development here was that the licence renewal period had been extended from one year to two.

However, he added: “The draft rules recognise the reality that whilst life products can continue to be sold by an IA-licensed broker/insurer, individuals employed by these entities may not always be suitably qualified to provide investment advice.”

“The introduction of licensed investment advisers as being able to provide investment advice to life product holders (and that the same cannot be provided with out such a licence) as a separate and additional service to the sales process allows for product holders to obtain investment advice in parallel to their insurance broker and, if appropriate, pay a separate fee for the same (which can fall outside of the commission cap).”

While not clear at this stage, Bicknell pointed out the draft rules seemed to indicate these new investment advisers can be employed by non-IA licensed entities, which could presumably allow for SCA-licensed financial consultants to advise product holders.

“It’s not clear from the draft proposals what the criteria for this licence will look like, though its likely it will rely heavily on the SCA’s promoters licence,” he told International Adviser.

Fund performance

The draft proposals from the IA also include details on a ”free look” period for customers and rules on transparency for all charges and fees, and provisions for calculating the surrender value of a policy,

“The surrender value, at any time of the policy, should be set in a way that the profit of the company should not be greater than or equal to what would have been obtained if the policyholder had not surrendered,” the IA rule sates.

The rules require the insurance broker to provide the historical performance of at least the top five funds to the policyholder where the performance of the policyholder’s account is dependent on either an internal or external fund. This will have to include at least five years of fund performance or all years if the fund has not yet been in existence for five years.

The need for a fully-executed risk management document still applies and the ongoing requirement to provide an illustration after sale upon the product holder’s request presents an ongoing burden on product issuers, said Pinsent’s Bicknell.

Bicknell said, given the time already taken by the IA on gathering feedback from its previous drafts (Circular 33 and Circular 12), it seems likely this is the last version of the rules and these could now be gazetted – which would mean they come into law quite quickly.

Though the draft does allow a two year “alignment period” for companies to implement the proposed regulations.

The affiliate was not named in the SEC document but described as a third-party product provider.

The SEC found that the undisclosed commission – including an amount equivalent to 7% of the pension transfer value – created an incentive for deVere USA to recommend a pension transfer and particular product or service providers.

The company also made materially misleading statements concerning tax treatment and available investment options, the regulator said.

Without admitting or denying the findings, deVere USA “consented to the SEC’s order, which finds the firm violated the Investment Advisers Act of 1940, including the antifraud provision, and imposes remedies that include an $8m (£6m, €6.8m) penalty and engaging an independent compliance consultant”, the SEC stated.

Filed charges

The US regulator also announced it is also taking separate action against two former deVere USA investment adviser representatives, one of whom was chief executive of the firm.

Charges have been filed against chief executive Benjamin Alderson and former manager Bradley Hamilton.

It is alleged that they misled clients and prospective clients about the benefits of pension transfers while concealing material conflicts of interest, including upfront commission of 7% that Alderson and Hamilton personally stood to receive.

The SEC’s complaint against Alderson and Hamilton alleges that they violated the Investment Advisers Act and it is seeking an injunction, disgorgement plus interest, and civil money penalties.

Marc Berger, director of the SEC’s New York regional office, said: “Investment advisers have an obligation to disclose direct and indirect financial incentives.

“DeVere USA brushed aside this duty while advising retail investors about their retirements assets, and today’s settlement will result in a Fair Fund distribution to deVere USA’s retail clients who were deprived of this information.”

DeVere statement

A spokesperson for deVere USA said the company “is pleased to announce that the SEC has accepted its offer to settle an administrative proceeding relating to certain aspects of its historical business in the US”.

“The settlement clears that way for the company to continue to develop its investment advisory business in the US,” the spokesperson added.

DeVere USA has hired a new management team and “strengthened its overall systems and controls”.

“As part of its settlement with the SEC, the company has agreed to retain an independent compliance consultant to conduct annual reviews over the next three years,” the spokesperson said.

Pension transfers

This is not the first time that deVere has encountered difficulties with pension transfers.

DeVere UK stopped providing advice on overseas pension transfers in February 2017.

At the time, a deVere spokesperson said the company had “entered into a voluntary requirement to cease providing advice in this arena”.

The amnesty forms part of a five-point tax plan approved by president Mamnoon Hussain on Sunday, in an attempt to shore up reserves in a country in which only 1% of the population pays tax.

Politically exposed persons

The amnesty is open to “every company, association of persons and all citizens of Pakistan wherever they may be, except holders of public office, their spouses and dependent children”.

This includes the president, prime minister, chairman of the senate, attorney-general and members of parliament – all the way down to deputy mayors of municipal councils.

However; it was later clarified that it only excluded those who are or have been a holder of public office at any time since January 2000.

Therefore, holders of public office prior to January 2000 can take advantage of the amnesty.

Reduced rates

The Pakistan Revenue confirmed that all Pakistanis have been given an amnesty rate of between 2% and 5% to “white their illegal/undocumented money and assets”.

The 2% rate will apply to liquid assets that are repatriated.

A charge of 3% will be made on immovable assets outside of Pakistan, while a 5% tax will be put on liquid assets that are kept overseas.