NORM CHAMP'S REMARKS AT 2013 INSURED RETIREMENT INSTITUTE GOVERNMENT, LEGAL & REGULATORY CONVERENCE

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Remarks to the 2013 Insured Retirement Institute Government, Legal & Regulatory Conference

by

Norm Champ

Director, Division of Investment Management
U.S. Securities and Exchange Commission
Washington, D.C.
June 18, 2013

Introduction


Good morning and thank you for inviting me to speak to you today. Before I begin, let me remind you that the views I express are my own and do not necessarily reflect the views of the Commission, any of the Commissioners, or any of my colleagues on the staff of the Commission.


This is a challenging time for our nation’s investors, so many of whom are at a turning point in their investing career. As you know, probably better than most, a large and growing number of the nation’s investors are reaching retirement age and are shifting their focus from the accumulation of retirement assets to the challenge of income management. This translates into a challenge for those of you who issue and sell investment products that provide income solutions, and of course I’m thinking primarily of variable annuities. This in turn raises a challenge for regulators – to provide effective oversight and to protect investors as the landscape changes, with evolving investor needs and new products designed to meet those needs. Many of these challenges are a matter of communication, and improved communication is the key to much of what the staff has accomplished recently, and hopes to accomplish going forward.

With that as a backdrop, I would like to discuss with you some of the important developments in our work to protect investors, including some exciting developments at the Division of Investment Management. As I talk about what’s happening at the Commission, keep in mind that the Commission does not – cannot – work in a vacuum. It is essential that we all work together to protect Americans’ investments. The Commission’s mandate is clear – to protect investors, ensure fair and orderly markets, and promote capital formation. The variable products industry has to do its part by offering products that are well designed to meet investors’ needs and that provide investors the fair deal that they expect and deserve.

The Division is very focused on the way in which our work fits in with the Commission’s mandate. The Division works to protect investors, promote informed investment decisions, and facilitate appropriate innovation in investment products and services through regulating the asset management industry. This mission statement was drafted with the help of the entire Division, and we are firmly committed to that mission.

For the past year, the Division has been engaged in a program of change to develop a culture of continuous improvement. If we are to best serve investors, we need to continue what we are doing well and improve what isn’t working as well. Today I would like to focus on communication as a key area for continuous improvement – our ability to watch, listen, and learn about market developments; our communications with investors and industry participants; and our internal communications at the Commission. I’ll close with some observations about your communications with investors.

One area where we are seeking to improve is enhancing our awareness, and being more in tune with industry developments and investors’ experiences. This effort involves getting a better and more first-hand understanding of the workings of the investment management industry. It also involves expanding our sources of knowledge so that it doesn’t come from sitting at desks in Washington, but from interacting with you and your colleagues who are directly serving America’s investors.


The Staff’s Ability to Watch, Listen, and Learn About Market Developments

A primary tool in our work towards better awareness is the Division of Investment Management’s new Risk and Examinations Office or "REO."

REO supports the Division’s work primarily through two functions. First, REO maintains an industry monitoring program which provides ongoing financial analysis of the investment management industry, including in particular the risk-taking activities of investment advisers and investment companies. The REO monitoring program’s work includes analysis of the information the industry provides through various regulatory reports, including Form ADV, Form PF, and Form N-MFP. The REO monitoring program also maintains an ongoing dialogue with certain strategically important industry participants. Second, REO conducts an examination program which gathers additional information from the investment management industry to inform the Division’s policy making. All of REO’s work will inform the initiatives that the Division devotes resources to and help inform the rules we are drafting.

REO represents a new area of focus for the Division of Investment Management, and I expect REO to complement the work of the SEC as a whole. I am excited at the prospect that REO can help the staff to be proactive and get out in front of industry trends, rather than reacting to practices that have long ago "left the station."

Early stage work of REO has involved meetings that REO staff and I have had with senior management and fund boards at some of the larger, strategically important fund complexes. We have made it a point not to bring folks into our offices for meetings, but to visit their headquarters, giving the staff a first-hand view of systems, controls, personnel, and even a sense of a firm’s culture and approach to compliance. This illustrates our commitment to effective dialogue and two-way communication. We will be better regulators to the extent that we better understand the workings of the industry we regulate. And if firms see our willingness to reach out and to listen, hopefully they will respond with increased cooperation and more effective communication.

As I noted, the visits thus far have been with fund complexes. I can see similar exercises with variable product issuers as a likely evolution of this strategic work of outreach and communication with important market participants. In addition, the head of REO, Jon Hertzke, will be working closely with the staff of the Insured Investments Office to determine ways in which REO can help with the important work that group does. The expertise of REO staff regarding complex financial instruments is expected to be an invaluable resource to the Insured Investments staff.


Staff Communications with Investors and Industry Participants

The flip side of improving the staff’s awareness is improving the industry and investing public’s awareness of us, or in other words, improving our outside communications. In furtherance of this goal, the Division recently hired a Communications Counsel, Derek Newman to manage our external communications, working with others on the staff to prepare and disseminate public releases, alerts, reports, joint regulatory reports, and key speeches. In addition, we will reach out to you, the industry, to find out what you need additional guidance on or where you have uncertainty about the law. We will then work diligently to get the appropriate guidance out there.

Another way in which we hope to improve communications is through modernizing our website. The Division website has been redesigned to make it more user-friendly, while at the same time making its contents more comprehensive. There is a portion devoted to IM news so that you can stay up to date on developments in IM. We have organized various materials chronologically and topically, which should make it easier to find what you are looking for. We have also created a "Guidance Update" section of the website, which we plan to use as a way to get more information out more quickly. In the "Contact" part of the site, we included an organization chart for the Division, which helps point you to the Division office that might best assist you on a given matter. Our overall goal is to make our positions and our organization more transparent.

We anticipate that the new website will be a valuable resource for the industry and other SEC stakeholders, and I urge you to check it out if you have not done so already.

In addition, the Commission’s Office of Investor Education and Advocacy maintains an investor-focused website, called investor.gov. This site provides user-friendly information for investors, much of which is relevant to seniors and other investors planning for retirement. This includes a brochure on variable annuities and information on topics such as managing lifetime income and avoiding retirement fraud. There is information on senior specialist designations, which imply that financial professionals are expert at advising seniors on financial issues, as well as a link to FINRA’s helpful information on this subject. The site also features investor alerts and bulletins covering such matters as investment scams and settlements of periodic income streams. Our Insured Investments Office has been working together with the Office of Investor Education and Advocacy and others to update the materials on the website, with a view to keeping them relevant and up to date.


Communication at the Commission

The Division of Investment Management is also focused on better communications with our colleagues throughout the Commission. Shortly after I joined the Division, we undertook a series of conversations with our counterparts in other offices, with a view to obtaining their feedback and enhancing their awareness of who we are and what we do. As a result, staff members in other offices are now better able to attach a name and a face in the Division with an area of our work that affects what they do.

The Division has also worked intentionally towards better coordination and cooperation with other offices in connection with major initiatives. We are doing this as an integral part of the process, rather than a late stage check-in with another office after the essential work on the matter has been completed. This involves comparing notes with others on our initiatives early and often, seeking meaningful substantive input at all stages of a major undertaking like a rulemaking.

A great example of this is the proposal for rule amendments for money market funds that was approved by the Commission two weeks ago. Every stage of the process of developing those recommendations involved close collaboration with the Division of Risk, Strategy, and Financial Innovation, recently renamed the Division of Economic and Risk Analysis, and with the offices of each of the commissioners. The proposal was informed by a robust study that the Commission’s economists undertook to address concerns raised last year by commissioners, which allowed the proposal to be rooted in a thorough analysis of data and economics. Our collaborations with the Division of Economic and Risk Analysis, as well as with the Office of the General Counsel and others, resulted in careful consideration of risks, costs, and benefits that characterized the development of those rule recommendations. The Division hopes to continue this collaborative approach to rulemaking as we move forward with upcoming rulemaking priorities.


Issuers’ Communications with Investors

Now I’d like to turn from our communications to your communications.


Accurate Prospectus Disclosure

As insurance products become more complex, effective communication among issuers, producers, and investors about how the products work becomes more important. Also important is communication about how the products may not work to meet investors’ needs, by which I mean how investment objectives can be frustrated, or totally undermined. I think this point is illustrated perfectly by the Massachusetts Mutual Life Insurance Co. settled Commission order issued by the Commission this past November.

The variable annuity contracts at issue in that matter offered a minimum income benefit. As you know, this type of benefit promises that the contract value will, in time, reach a minimum amount, and thus provide a minimum income stream in the payout phase of the contract. The income benefit offered by the insurer was capped at a specified level. A key feature of this contract that was not sufficiently explained to investors provided that, once the cap was reached, withdrawals under the contract could potentially deplete the income benefit to zero.

Not only did the prospectus neglect to sufficiently explain this, but a number of the agents selling the contracts did not understand it themselves. In some cases, in fact, the agents understood the exact opposite, mistakenly telling customers they could maximize their income benefit by taking withdrawals after allowing their income benefit values to reach the cap. In fact, that strategy would, under certain circumstances, have resulted in reductions in the benefit value, reducing and potentially eliminating future income payments. The order also indicated that there were indications that sales agents and others did not understand this product feature that should have alerted the insurance company to the fact that its disclosures were inadequate. MassMutual did take remedial steps that included eliminating the cap on the minimum income benefit. The Commission considered these remedial steps in arriving at the settlement that was announced last fall.

The moral of this story is that your investors’ retirement income should not be put at risk because of complexities in your contracts that are not clearly disclosed. The staff of the Insured Investments Office takes this message to heart in its review of disclosure filings, working on a daily basis to elicit clear and effective communication about ever more complex insurance products. But only you know whether your disclosure accurately describes your contracts. And of course, if there are red flags putting you on notice that your disclosure is not doing the job, for example, if your sales force does not understand your contracts, it is incumbent on you to take appropriate remedial action immediately.


Disclosure Challenges for New Products

In its work, the staff pays close attention to the way in which issuers communicate the material features, risks, and costs of new types of annuities. For example, in the past year the staff has reviewed several filings for index annuities that have features similar to structured notes and that have registered with the Commission as a result of the potential for significant downside loss. These contracts generally provide returns linked to an index, such that if the index goes up, investors benefit in proportion to the increase, subject to a cap. Investors bear the risk of loss in excess of a specified amount of loss protection offered under the annuity. In addition, these annuities apply an adjustment to early withdrawals using often complex formulas. The staff has noted that sometimes these formulas can result in a loss of principal, even if the reference index has appreciated at the time of the withdrawal.

In its reviews of prospectuses for these annuities, the staff has focused on clear disclosure to investors of: (1) the total amount that they can lose; (2) the limits on what they can gain; and (3) the potential for principal loss on early withdrawal. The staff has also insisted upon prominent disclosure when the contract provides that the investor is automatically rolled at the end of a term into a new term with different, possibly less favorable benefits, as well as how investors can opt out of such automatic rollovers. Also, given the potentially dramatic impact of early withdrawals, the staff has asked for plain English disclosure concerning the methods used for calculating early withdrawal amounts. These calculations are complex, and the challenge for issuers is conveying in simple terms what the calculations are designed to accomplish and explaining clearly how that goal is achieved.

Finally, the staff has focused on the names of these products. While investors should never rely on a product name as the sole source of information about it, a name can communicate a great deal. Given the significant downside risk of some of these recently registered index annuities, the staff is careful to watch for names that might suggest that the product is without such risk, and has in fact asked for name changes in certain cases. Note that our goal is not to discourage the use of descriptive names for new products, but rather to see that product names do not suggest a level of safety that they do not provide.

As you prepare filings for new products, keep in mind the vital importance of clearly conveying how the products work and what the important points of disclosure should be. I applaud your efforts to find innovative solutions to the problems investors are facing in the retirement space, but at the same time I urge you to make every effort to accurately and fully communicate to investors exactly what they are buying - not just the benefits, but the risks, as well.


Variable Annuity Summary Prospectus

Another area of staff focus is a new rule that would create a summary prospectus for variable annuities. We are working hard to fashion a framework for disclosure that would help you communicate concise, user-friendly information to investors considering these products. As you know, the features and pricing of variable annuities can be complex and difficult to understand. We continue to be committed to attacking the problem of long and complex disclosure about variable annuities, while at the same time, facilitating disclosure for each variable annuity that will tell the full story – the key facts that investors need to know about the limitations and costs, as well as the benefits, of their investment.

The Division continues to believe that the mutual fund summary prospectus, adopted in 2009, and now used successfully by so many funds, may offer a useful model for providing the disclosure that variable annuity investors need. The mutual fund summary prospectus may serve as a model for the concept of providing key information in a concise and user-friendly format, and for the concept of "layered" disclosure, that is, an approach in which the key information is sent or given to an investor and more detailed information is provided online and in paper upon request. We believe that this approach can maximize effective use of modes of communication -- paper or electronic -- and can make it easier for investors to choose between them. Just as important, it can help make information readily available 24/7 -- whenever the investor needs it.

In connection with our efforts to develop a variable annuity summary prospectus, we are seriously considering ways of improving delivery of information to both investors contemplating the purchase of a new contract and investors considering additional investments in an existing contract. Ideally, each investor would have ready access to information that is tailored to his or her information needs. The Division is looking at ways to achieve that result.


Conclusion

I hope I have conveyed some of the ways that the Division is working to improve the communications that are key to the success of our work. The establishment of the Risk and Examinations Office is an exercise in proactive listening and watching; having our ear to the rail if you will, so that we are not blindsided by market trends and industry developments. Several of the changes in the Division, including revamping our website, are aimed at better communicating with you and with the investing public. The Division’s efforts to communicate more effectively with our colleagues throughout the Commission have already borne fruit, most notably in the Commission’s recent money market fund proposal. The disclosure issues I have discussed highlight the central importance of your disclosure documents as key communication tools for reaching your investors. And the staff is excited about the possibilities for a summary variable annuity prospectus, and the layered disclosure approach generally, to make that communication effort more effective.

Of course, it takes two for communication to take place, and I hope I have also conveyed the importance of your role in all of this. We expect you to take to heart our invitation, indeed our earnest expectation, that you who design, offer, and sell these important products will communicate your concerns and your ideas as we work together to serve the needs of America’s investors.










 

EILEEN ROMINGER SPEAKS ABOUT INVESTMENTS AND RETIREMENT

The following excerpt is from the SEC website:

"Speech by SEC Staff:
Keynote Address at the Insured Retirement Institute 2011 Government, Legal & Regulatory Conference

byEileen P. Rominger
Director, Division of Investment Management
U.S. Securities and Exchange Commission
Washington, D.C.
June 28, 2011
Thank you for the kind introduction. I am very pleased to be with you today. Before I begin, please note that my remarks here today represent my own views and do not necessarily reflect the views of the Commission, any of the Commissioners, or any other member of the Commission staff.

This is my first occasion to speak to you as Director of the Division of Investment Management. I have been looking forward to this opportunity because, based on my work with the staff so far, I find the area of variable products to be dynamic and challenging. It seems that I have come on board at a critical time of changing landscapes, product innovations, and rapid developments in your industry. It is already clear to me that the variable insurance products industry is wasting no time in tackling what is perhaps the most pressing economic concern of the aging boomer generation: the management of retirement income.

This means that we are seeing a proliferation of new product designs and innovations. Some of these raise substantive regulatory concerns, often driven by the fact that variable separate accounts must operate within the regulatory framework of the Investment Company Act. But even the simpler, more traditional variable contracts we see that do not present significant regulatory issues still face the challenge of clear and useful disclosure, as even the simplest contract designs can be difficult to explain in straightforward plain English. In short, I am struck by the many challenges raised in the regulation of variable contracts. As your industry rises to meet the changing need for retirement income solutions, I look forward to working with you towards our shared goal of protecting the interests of investors.

I would like to review with you a few of the newer product ideas the Division has seen of late and, where appropriate, relate these to some of the broader themes commanding the staff’s attention currently.

I. Insurance Company Control Over Underlying Investments
As you know, the proliferation of so-called living benefit riders in variable annuity contracts has been one of the dominant forces driving contract sales in recent years. Since the market decline in 2008, variable annuities have attracted many investors by virtue of the newer contract benefits – the so-called “living benefit” options offered to owners of variable annuities. These provide insurance with regard to minimum contract values or minimum periodic withdrawals. Of course, these benefits have both direct and indirect costs. First, the investor pays directly for these benefits by way of a charge against contract value, which significantly affects investment performance and reduces the upside potential of the contract. Since 2008, when so many of these benefit riders were “in the money” as a consequence of the recent global financial crisis, the staff has seen many filings reflecting increased fees charged for these benefits.

In addition, purchasers of these optional benefits are facing increasing limitations on investment choices, reflecting an effort by insurers to limit volatility of the investments that are subject to the benefits. For example, variable annuity contracts often prohibit allocations to the more volatile funds, or require participation in a conservative asset allocation model that is designed and maintained with reference to the insurer’s exposure under its living benefit riders. An important staff concern here has been to ensure that investors are apprised of the trade-off involved in such an arrangement. While living benefit riders do provide a measure of protection from a down market, it should be clear to those purchasing the riders that these investment restrictions minimize the likelihood that the riders will ever be “in the money” and actually provide a benefit to the investor, and that such restrictions also may limit the upside potential of the investment.

Many insurers also control underlying investments by implementing so-called “stop-loss” features of the contract. These features typically operate as asset allocation models that move account value among underlying funds pursuant to a formula. Account allocations are changed to more conservative investments, such as government bond funds or money market funds, during declining markets and, in most cases, moved back to the original allocation during periods of sustained market growth. As a disclosure matter, it is important that any ability of an insurer unilaterally to change account allocations be clearly explained. For adequate disclosure, I believe the contract prospectus should set forth the precise parameters under which account allocations may be changed. It should also explain the effects of such changes, such as the possibility of missing a market uptick during a period of fixed income allocations.

On a related topic, underlying funds are frequently managed by advisers that are affiliated with the insurance company. This has been true throughout the history of variable contracts. However, with the proliferation of living benefits under these contracts, the Division has become increasingly concerned about potential conflicts of interest that may result from the fact that the amount of an insurance company’s liability under living benefit riders is directly related to the performance of funds that are managed by its affiliate. Recently, we have begun to see prospectus disclosure acknowledging the conflict, and even indicating that the management of a fund could be influenced by the risk exposure faced by the adviser’s affiliate, the insurance company. Further still, one recent filing disclosed an arrangement under which a fund, which will be a required investment allocation for participants in certain living benefit riders, will be managed through adherence to a formula that uses data provided periodically by the affiliated insurer.

Again, I think it is vitally important in these kinds of arrangements that investors understand the trade-off inherent in an investment of this type. Traditionally, variable annuities offered investors a tax-efficient way to participate in the equity markets, albeit at a cost to cover the insurance company’s mortality and expense risks under the contract’s annuity feature or death benefit. I believe an investor purchasing a living benefit rider should be fully informed of any aspect of the arrangement that could limit the market participation reasonably expected by the investor.

Beyond the disclosure implications here, keep in mind that separate accounts and underlying funds, as investment companies, are subject to the Investment Company Act’s conflict of interest provisions. These were designed by Congress to prevent any overreaching on the part of fund affiliates in their dealings with the fund. From that perspective, I think it is important that the board of directors of any fund that may be subject to conflicting interests on the part of its adviser be vigilant watchdogs for the fund’s investors, ensuring that arrangements entered into are for the benefit of those investors. To accomplish that goal, I believe board deliberations should squarely address any potential conflict on the part of the fund’s adviser and other service providers. Meanwhile, a fund’s adviser and the insurance company that offers a fund on its platform should be careful in formulating arrangements to head off any potential for overreaching in their dealings with the fund.

II. Other Contract Developments
I would like to turn now to some other contract developments. As more and more investors turn their attention from accumulating assets to managing income, we expect to see more new types of annuities, funded by or patterned on instruments that have become popular elsewhere in the marketplace. Two indexed annuities that were recently registered bear similarities to structured notes that lately have garnered a lot of attention both in the media and from the Commission staff. These contracts, if held to term, promise some percentage of the return of a specified equity or commodity index, but provide only very limited downside protection if the contract is surrendered early. In this regard the contracts are similar to certain so-called “structured notes with principal protection.”

On June 2nd of this year the Commission’s Office of Investor Education and Assistance and FINRA jointly issued an investor alert about those instruments, which I commend for your review. It noted that, while these structured products have reassuring names, they are not risk-free, and the terms of such notes related to any protections to or guarantee of principal require a careful review. For example, despite the name “principal protection,” protection levels vary, with some of these products potentially returning as little as 10 percent of principal. The investor alert also pointed out that these products can have complicated pay-out structures that can make it hard to accurately assess their risk and potential for growth. In addition, the products have fees, whether implicit or explicit, even if the sales materials suggest otherwise, which of course will limit returns.

Annuities are a form of insurance, which may suggest safety of an investment simply by virtue of the type of issuer. But annuities patterned on the operation of these structured notes call for caution on the part of investors along the lines set forth in the recent investor alert. The staff’s review of the annuity filings I mentioned earlier focused on effective disclosure of the considerable risk associated with the minimal downside protection. I believe it is important that anyone working towards future filings regarding similar products should do all that you can to prepare disclosure aimed at ensuring that investors are not confused or misled. And I would caution you, as well, that you will be well served by exercising vigilance with respect to the suitability of sales of these products.

III. Disclosure Issues Related to Derivatives
I have already mentioned the need for clear, effective disclosure in variable contract and underlying fund prospectuses. I thought I would take this opportunity to stress one aspect of that theme. As funds are increasingly designed and managed with reference to insurance company obligations under living benefit riders, derivative hedging transactions are likely to play an increasing role in the management of these funds. I would like to speak for a few minutes about the disclosure implications of this trend.

The need for disclosures that clearly inform investors about the specific attributes of derivatives has been highlighted by the staff on multiple occasions, virtually from the beginning of the use of derivatives by funds. Just recently, the Division wrote to registrants regarding observations by the staff that funds’ derivatives disclosures were in many cases generic rather than specific, and did not fully apprise investors of the specific types of investments actually expected to be made. The staff noted that several forms of unhelpful disclosure concerning derivatives are commonplace, including laundry list enumeration of virtually all types of derivatives as potential investments; generic language about potential purposes for using derivatives; open-ended, non-specific disclosures concerning the extent of anticipated derivatives transactions; and, generic risk disclosure regarding derivatives that may or may not relate to the actual risks faced by the fund. The staff also observed that some funds provided extensive and hyper-technical discussions of derivatives which, in practice, bore little relation to the actual operation of the fund. These sorts of disclosure relating to the use of derivatives do not provide investors with useful information regarding the operation and management of the fund.

Addressing these shortcomings, the staff noted that disclosure relating to the use of derivatives should be tailored specifically to the intended management of the fund. The level of detail in the disclosure should correspond to the degree of economic exposure the derivatives create, in addition to the amount invested in a derivative strategy. The staff further noted that disclosure should describe the purpose the derivatives are intended to serve and the extent to which derivatives are expected to be used. For example, if the instruments are to be used for hedging, what are the risks being hedged? If for investment purposes, what are the opportunities contemplated?

Finally, the staff also noted that risk disclosures should be tailored to the types of derivatives used, the extent of their use, and their purpose, as a means of providing investors with a complete risk profile of the fund’s investments, taken as a whole.

IV. Summary Prospectus
I’d like now to turn to a topic that I believe has great potential for the variable insurance industry. In January 2009, the Commission adopted rules providing for an improved mutual fund disclosure framework through the use of a summary prospectus. Briefly, the summary prospectus option provides for a concise and user-friendly, plain English document for fund investors containing key information about the fund’s investment objectives and strategies, risks, costs, and performance. More detailed information is available both in paper form and also online in a format that facilitates direct movement between concise information in the summary prospectus and more detailed information in the statutory prospectus.

It has now been over two years since the Commission adopted the summary prospectus option. In that time, the staff has seen an encouraging number of summary prospectus filings. As of March 31, almost 70% of mutual funds had opted to file summary prospectuses with the Commission. Those who worked on the initial submissions should be commended for a strong implementation effort. I encourage you to listen to your investors and to the various parties in the chain of distribution so that you can fine-tune these documents and craft truly effective summary disclosure in this streamlined format.

As the staff gains experience with the mutual fund summary prospectus, we are continuing to consider a similar disclosure framework for variable annuities. In particular, we are studying the feasibility of a summary prospectus for variable annuities that would provide investors with key information in a clear and concise format.

The challenges, of course, are many. Variable annuities can be difficult to understand. They often have complicated features, not the least of which are the living benefit riders I discussed earlier, and they often have complex fee structures.

Disclosure about these products is further complicated because insurers may modify features of existing contracts as time goes on. As a result, any given variable annuity prospectus may include disclosure about features that are no longer available to current purchasers but may remain available to contract owners who purchased their contracts in the past.

While these factors make our task of developing more user-friendly disclosure for variable annuity investors very challenging, they also make the task all the more important. I believe it is essential that investors be provided with clear disclosure and have ready access to the information they need to make well-informed investment decisions because of the central role that variable products play in the financial plans of so many investors, especially those who are in or approaching their retirement years.

We have received valuable input from the IRI and other industry representatives on the topic. I appreciate the industry’s active involvement and willingness to help the staff work through the challenging issues raised by this initiative and encourage your continued involvement as we continue to study improved disclosure in the variable annuity context."