Deferred variable annuities (DVAs) are hybrid financial products that allow an individual’s money to grow on a tax-deferred basis within subaccounts, similar to mutual funds, that are selected from a wide variety of options with different asset classes and risk levels.Â
These complex products combine investment and insurance features but also carry ongoing fees, which can reduce returns. FINRA Rule 2330 establishes important guidelines advisors must follow to properly recommend any DVA that is right for each individual client’s unique needs, resources, and long-term financial goals.
If you have any outstanding questions about the protections afforded by FINRA Rule 2330 regarding suitable DVA recommendations, our experienced Investment Fraud Lawyers can help explain further and address any concerns you may have.
What Are Deferred Variable Annuities?
Deferred variable annuities, also called DVAs, have characteristics of both investments and insurance. Your money can grow in a tax-friendly way inside options like mutual funds. There are many types of funds, or “subaccounts,” to choose from, including different mixes of stocks, bonds, and risk levels.Â
You can also add optional guarantees for death benefits or income in retirement. As with mutual funds, your balance goes up or down depending on how the markets perform in your chosen subaccounts. However, DVAs also charge regular fees that are deducted over time.
Taxes on DVAs
You don’t pay taxes each year on capital gains or dividends as you do with regular brokerage accounts. This lets your full balance benefit from compound growth without taxes taken out.
Taxes are only due when you withdraw money or start your income payments if you choose that option.Â
This tax-deferred feature allows DVAs to possibly accumulate more than a taxable account if fees aren’t too high.
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Key Protections from Rule 2330
Rule 2330 is designed to protect investors from inappropriate sale of annuities. This rule safeguards you at key points when working with an advisor on a DVA. Let’s discuss some significant protections:
Suitable Recommendations
Advisors must believe recommendations suit your situation based on the information they collect. They need to verify you understand general DVA features and how you may benefit from tax deferral or income options. Certain Rules of FINRA are specifically meant to prevent advisors from making recommendations that are not in the investor’s best interest.
Principal Review
Within 7 business days, a principal higher up at the firm will carefully review any DVA transaction for suitability before your application is submitted. This adds an important double-check.
Oversight at the Firm
Companies must have procedures to oversee advisors’ actions, monitor exchange rates for inappropriate patterns, and provide ongoing training on compliance with Rule 2330.
When does Rule 2330 Apply?
It regulates recommendations for purchasing a new DVA or exchanging an existing one. Exchanges warrant extra scrutiny as you risk losing benefits or facing new costs.
Our attorneys have experience when Rule 2330 was potentially broken. We can review how it may apply if you have concerns with the advice you received. Knowledge is power when it comes to protecting your hard-earned savings.
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Common Steps When Exploring a DVA
Here are typical steps advisors should take under Rule 2330 when exploring a DVA for your needs:
- Gather personal information like age, income, investment goals, and risk tolerance
- Explain general DVA concepts, features, costs, and how it could suit your time horizon
- Recommend specific DVA, subaccounts, and optional benefits as suitable
- Document the recommendation and determine if it is right for you
- Obtain principal approval of the proposed transaction within 7 days
- Submit your application only after this higher-level review is complete
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When to Seek Legal Guidance
Rule 2330 establishes important criteria for advisors to follow. Contact our offices if you have concerns an advisor:
- Did not adequately explain DVA costs, features, or alternatives
- Recommended a DVA exchange against your best interests
- Did not obtain the required principal approval before submitting paperwork
- Failed to collect full details about your situation and needs
A compliance review could help determine next steps to recover losses from a DVA transaction not handled properly according to FINRA Rule 2330. Our attorneys are here to discuss your situation confidentially.
Protecting Seniors’ Investments Is Our Priority
We hope this explanation of Rule 2330 – Deferred Variable Annuities and its requirements for deferred variable annuity recommendations helped increase your understanding of the regulatory protections in place.Â
At Meyer Wilson, safeguarding our clients in their retirement years from any potential misconduct or misselling is our top priority. Rule 2330 helps ensure recommendations you receive from our advisors have properly assessed the suitability of specific DVAs for your individual needs, risks, and long-term financial goals.Â
If you have any other questions, please don’t hesitate to contact us. With your best interests in mind, we are happy to discuss your personal situation and help you understand the rules and your legal options going forward. Contact us for a free consultation.
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