SEC Letter on Variable Annuity Exchanges

Retail Exception Too Broadly Applied

By John M. Baker, Esq.

June 27, 2001 – The SEC‘s Division of Investment Management recently wrote several trade associations to advise of staff concerns with variable annuity exchanges. National Association for Variable Annuities, SEC No-Action Letter (June 19, 2001; available June 20, 2001).

Section 11 of the 1940 Act restricts offers to variable annuity contract owners to exchange their existing contracts for other variable annuity contracts. There is an implicit “retail exception” to section 11, such as when an individual broker recommends an exchange to a particular customer that is not part of an exchange offer to a group or class of contract owners.

The SEC staff expresses concern in the letter that some insurers may be interpreting the retail exception too broadly. The letter gives a list of factors that should be considered in determining whether a particular exchange offer is within the retail exception.

The SEC has been concerned for several years about the possibility of abuse in variable annuity contract exchanges, and the letter re-emphasizes regulatory concerns in this area.

I have placed a copy of the letter on the FundLaw web site at

Copyright 2001, 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, To subscribe to FundLaw, send a blank e-mail to

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.



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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

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