FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationProcessing Customer Orders and TransactionsMedium
A client owns a variable annuity and wishes to transfer funds from the aggressive growth subaccount to the money market subaccount. Which of the following statements is true regarding this transaction?
- AThis transfer will be considered a taxable event.
- BThis transfer will be executed at the next calculated unit value.
- CThis transfer is subject to a sales charge.
- DThis transfer requires a new prospectus to be delivered.
Show answer & explanationAnswer & explanation
Correct answer: B. This transfer will be executed at the next calculated unit value.
Transfers between subaccounts within the same variable annuity contract are treated like mutual fund trades, using forward pricing. They are not typically subject to sales charges, are generally not taxable events, and do not require a new prospectus. The transaction will be executed at the next calculated unit value (NAV equivalent).
Why the other options are wrong
- A. Transfers within a variable annuity are generally tax-free as long as funds remain within the contract.
- C. Internal transfers within the same contract are generally not subject to new sales charges.
- D. A new prospectus is not required for an internal transfer within an existing contract.
Variable Annuity Subaccount Transfers
Moving funds between investment options (subaccounts) within the same variable annuity contract.
- Uses forward pricing (next unit value).
- Generally not a taxable event.
- Not subject to new sales charges.
Memory trick: Internal moves, future values prove.