Series 6

FINRA Conduct Rules - FINRA Conduct Rule 2820: Variable Contracts

Rule 2820 applies exclusively to the activities of members in connection with variable contracts, to the extent such activities are subject to regulation under the federal securities laws. Certain definitions are the same under this rule as under Rule 2830 for investment companies, including compensation, cash compensation, non-cash compensation and affiliated person. Other important definitions under this rule include:

  • Purchase Payment: refers to consideration paid at the time of each purchase under the variable contract
  • Variable Contracts: refer to contracts providing for benefits or values which may vary according to the investment experience of any separate or segregated account or accounts maintained by an insurance company
  • Offeror: refers to an insurance company, a separate account of an insurance company, an investment company that funds a separate account, any adviser to a separate account of an insurance company or an investment company that funds a separate account, a fund administrator, an underwriter and any affiliated person of such entities
Be sure to be familiar with the following under Rule 2820:

Receipt of Payment
No member can participate in the offering or in the sale of a variable contract on any basis other than at a value to be determined following receipt of payment and in accordance with the provisions of the contract, and, if applicable, the prospectus, which falls under the Investment Company Act of 1940. Payments need not be considered as received until the contract application has been accepted by the insurance company, except that by mutual agreement it may be considered to have been received for the benefit and risk of the purchaser when actually received.

Transmittal
Every member who receives applications and/or purchase payments for variable contracts must transmit promptly to the issuer all such applications and at least that portion of the purchase payment required to be credited to the contract.

Selling Agreements
No member who is a principal underwriter as defined in the Investment Company Act of 1940 may sell variable contracts through another broker-dealer unless (1) such broker-dealer is a FINRA member, and (2) there is a sales agreement in effect between the parties. Such sales agreement must provide that the sales commission be returned to the issuing insurance company if the variable contract is tendered for redemption within seven business days after acceptance of the contract application.

Redemption
No member shall participate in the offering or in the sale of a variable contract unless the insurance company, upon receipt of a request in proper form for partial or total redemption in accordance with the provisions of the contract, undertakes to make prompt payment of the amounts requested and payable under the contract in accordance with the terms thereof, and, if applicable, the prospectus.


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