A registered representative is preparing to deliver a sales presentation for a variable annuity. Which of the following statements regarding FINRA Rule 2320 (Variable Contracts of an Insurance Company) is TRUE?
- AThe rule exempts variable annuities from suitability requirements due to their insurance features.
- BThe rule primarily focuses on the disclosure of insurance company financial strength ratings to customers.
- CThe rule mandates a minimum 10-day free-look period for all variable annuity purchases.
- DThe rule requires that a registered representative determine if a variable annuity is suitable for a customer based on their financial situation, tax status, and investment objectives.
Show answer & explanationAnswer & explanation
Correct answer: D. The rule requires that a registered representative determine if a variable annuity is suitable for a customer based on their financial situation, tax status, and investment objectives.
FINRA Rule 2320 (Variable Contracts of an Insurance Company) explicitly requires registered representatives to determine the suitability of a variable annuity purchase based on a customer's individual financial situation, tax status, and investment objectives before making a recommendation.
Why the other options are wrong
- A. Variable annuities have strict suitability requirements, not exemptions.
- B. While financial strength is important, the rule's primary focus is on suitability and disclosure of product features, not solely on company ratings.
- C. While free-look periods exist, the specific length can vary by state and is not the primary focus of this FINRA rule.
FINRA Rule 2320 Suitability
FINRA Rule 2320 requires registered representatives to ensure that any recommendation to purchase or exchange a variable annuity is suitable for the client based on their financial profile and objectives.
- Applies to variable annuities
- Mandates suitability determination
- Considers financial situation, tax status, investment objectives
Memory trick: Suitability is the '2320' for variable annuity 'go'!