Areas of Focus

1. FIRMA NATIONAL RISK MANAGEMENT TRAINING CONFERENCEBDIA HOT TOPICSAPRIL 29, 20099:15 AM – 10:15 AM

2. FINRA’s 2009 Examination Program • Areas of Focus 1

3. Sales Practice Issues • Cash Alternatives • Sales of Securities in a High Yield Environment 2

4. Senior Investors Protection of Senior Investors and Baby Boomers is a FINRA Priority • A growing number of our nation’s investors are at or near retirement age • 75% of the nation’s consumer financial assets are held by someone who is 50 or order 3

5. Senior Investors – Sales Seminars • Securities regulators have been concerned with the use of “free lunch” sales seminars • SEC, NASAA and FINRA conducted a joint sweep 4

6. Senior Investors – SEC, NASAA, FINRA Sweep Findings Of all examination conducted, the finding were: • 5 or 4 % found no problems or deficiencies. • 63 or 57% found that firms used advertising and sales materials that may have had misleading • 59% found indications that firms had poorly supervised sales seminars • 23% found indications of unsuitable recommendations • 13% found indications of possible fraudulent practices 5

7. Senior Investor – Best Practices Best Practices Identified in the Sweep • Centralizing the process • Timeframes for supervisory review and approval • Home office review and approval prior to use • Seminar guest speakers to be reviewed and approved 6

8. Senior Investor – Best Practices Best Practices Identified in the Sweep • Two levels of supervisory approval • Written Guidance • Branch Managers attend seminars • Marketing materials created at a central level 7

9. Senior Investors–Rule Considerations NASD Rule 2210 • Broker-Dealers must provide certain sales material to FINRA • Advertisements and sales literature concerning mutual funds and variable annuities must be submitted for review within 10 business days of first use or publication (NASD Rule 2210(c)(2)(A)). 8

10. Rule Considerations: NASD Rule 2210 (b) and NASD Rule 472 (d) • Sales literature must be approved by a registered principal prior to the seminar • Firm must maintain all sales literature in a separate file for three years • File must include the name of the registered principal that approved the seminar • Broker-dealer must also maintain information concerning the source of any illustrative data 9

11. Rule Considerations: NASD Rule 2310 and NASD Rule 2821 • NASD Rule 2310 requires that a member shall have reasonable grounds for believing that a recommendation is suitable Regulatory Notice 07-53 • New NASD Rule 2821 regarding broker-dealers' compliance and supervisory responsibilities for deferred variable annuities. • Effective Date: May 5, 2008 10

12. Resources • Online Workshop Compliance Practices to Protect Senior Investors at finra.org / Education Programs • E-Learning Course Senior Investor Suitability Considerations at finra.org / Education Programs • Report of Examinations of Securities Firms Providing “Free Lunch” Sales Seminars at finra.org / Reports • Senior Investors Regulatory Notice 07-43 11

13. Variable Annuities A contract promising periodic payments (annuitization) Variable rate of return Features: Tax-deferred treatment of earnings Death benefit Annuity payout options Living benefits Accumulation phase Distribution phase Deferred versus immediate annuities 12 12

14. Applicable Rules General suitability rule (NASD Rule 2310) Supervision and supervisory controls (NASD Rules 3010 and 3012) Deferred variable annuities (NASD Rule 2821) Paragraphs (a), (b) and (e) are effective May 5, 2008 Effective date of NASD Rule 2821 paragraphs (c) and (d) have been deferred 13 13

15. NASD Rule 2821 Applies to purchase and exchanges Does not cover sales or surrenders Applies to purchases to fund IRAs Does not apply to purchases in employer-sponsored plans, unless recommendation made to an individual plan participant Four main requirements: Recommendation requirements Principal review and approval Firm supervisory procedures Firm training program 14 14

16. Registered Representative Responsibilities Reasonable basis to believe that purchase or exchange is suitable, based on: Customer has been informed of material features Customer would benefit from one or more features Annuity as a whole is suitable; underlying subaccounts, and any riders or similar product enhancements are suitable Document and sign determinations Reasonable efforts to obtain and consider customer information, including: Customer’s age, income, financial situation, needs, investment experience, investment objectives, intended use of the deferred variable annuity, existing assets, liquidity needs, liquid net worth, risk tolerance, tax status, investment time horizon 15 15

17. Added Responsibility If Recommending An Exchange Consider implications of Surrender charges New surrender period Loss of existing benefits Fees or charges Consider benefits from product enhancements and improvements Consider any previous exchange within last 36 months 16 16

18. Registered Principal Responsibilities Review each purchase and exchange application before sending to insurance company for processing Effective date extended These provisions may change 17 17

19. Broker-Dealer Firm Responsibilities Supervisory procedures Procedures reasonably designed to achieve compliance with rule Surveillance procedures to identify high volume of exchanges Procedures to address and correct non-compliant exchanges Automated supervisory systems may be used Training requirement For reps who sell deferred variable annuities For registered principals who review transactions Must cover material aspects of deferred variable annuities 18 18

20. FINRA Training Resources Variable Annuities: Principal Review (webcast or e-learning) Variable Annuities: Suitability Issues (webcast or e-learning) Variable Annuities: Sales Practice Issues for 1035 Exchanges (e-learning) Variable Annuities: Suitability and Disclosure for New Products (e-learning) Variable Products: Suitability, Disclosure and Supervision (1-day course) See www.finra.org/education for more information 19 19

21. Questions? 20