SERIES 6 CANDIDATES, BE CAREFUL TO STUDY FINRA RULE 2330 GOVERNING EXCHANGE OF DEFERRED VARIABLE ANNUITIES

Taking the Series 6 Exam? Be careful that you study FINRA's Rule 2330 governing the ethics and propriety of recommending to a client that he/she exchange one deferred variable annuity for a new one.

Take a look at the actual wording of FINRA's Rule 2330:

"(1) No member or person associated with a member shall recommend to any customer the purchase or exchange of a deferred variable annuity unless such member or person associated with a member has a reasonable basis to believe

(A) that the transaction is suitable in accordance with Rule 2111 and, in particular, that there is a reasonable basis to believe that

(i) the customer has been informed, in general terms, of various features of deferred variable annuities, such as the potential surrender period and surrender charge; potential tax penalty if customers sell or redeem deferred variable annuities before reaching the age of 59½; mortality and expense fees; investment advisory fees; potential charges for and features of riders; the insurance and investment components of deferred variable annuities; and market risk;

(ii) the customer would benefit from certain features of deferred variable annuities, such as tax-deferred growth, annuitization, or a death or living benefit; and

(iii) the particular deferred variable annuity as a whole, the underlying subaccounts to which funds are allocated at the time of the purchase or exchange of the deferred variable annuity, and riders and similar product enhancements, if any, are suitable (and, in the case of an exchange, the transaction as a whole also is suitable) for the particular customer based on the information required by paragraph (b)(2) of this Rule; and . . ."

Bob Eder has a detailed treatment of exchanging deferred variable annuities in his Study for the Series 6 Exam. Here is a sample of Bob Eder's discussion:

"Exchanging Variable Contracts                                                        (1.1)

"FINRA has found that some representatives have recommended that customers exchange one deferred variable annuity for another, thereby generating high sales commissions on the new purchase. The effect of such exchange has been, in many cases, harmful to customers, insofar as they may incur new surrender charges, increased mortality and expense fees, higher administrative costs, and increased fees for optional riders. FINRA looks carefully on a case-by-case basis where the same customer has engaged in a previous exchange within the past 36 months. Consequently, FINRA has adopted Rule 2330, requiring that a representative carefully document conditions in writing that would demonstrate appropriateness of such exchange."

Here is the link to FINRA's Content Outline for the Series 6 Exam. See the references to Exchanging Deferred Variable Annuities in FINRA's Series 6 Content Outline, Section 1.1.

Study for the Series 6 Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link for Bob Eder's Study for the Series 6 Exam on Amazon.

See Bob Eder's Author Page on Amazon.com.

For questions about Bob Eder's Study for the Series 6 Exam, or questions in general about the Series 6 Exam, such as Exchanging Deferred Variable Annuities, feel free to email Bob Eder at bobeder@bobeder.net.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001.