FINRA Rule 2330: Deferred Variable Annuities Compliance

FINRA Rule 2330, titled “Members’ Responsibilities Regarding Deferred Variable Annuities,” establishes specific sales practice standards that member firms must follow when recommending purchases and exchanges of deferred variable annuities.

Below, you’ll find useful information to help you understand FINRA Rule 2330, your obligations, and how to avoid common pitfalls.

What is FINRA Rule 2330?

FINRA Rule 2330 establishes standards for broker-dealers and their registered representatives when recommending deferred variable annuities to retail customers. It is designed to protect investors by promoting suitability, transparency, and oversight throughout the annuity recommendation process.

Rule 2330 is organized into six subsections that together form a comprehensive framework for compliance:

(a) General Considerations – Defines the rule’s scope, applicability, and exclusions.

(b) Recommendation Requirements – Outlines the suitability standard and mandates that firms make reasonable efforts to collect essential customer information before making a recommendation. This includes:

• Customer’s age
• Annual income
• Investment experience
• Investment objectives
• Investment time horizon
• Existing assets
• Risk tolerance

(c) Principal Review and Approval – Requires that a registered principal review and approve each transaction within a specified timeframe.

(d) Written Supervisory Procedures and Surveillance – Firms must implement supervisory procedures, monitor for inappropriate exchanges, and take corrective actions as needed.

(e) Training Requirements – Firms are required to provide training for both registered representatives and principals on deferred variable annuities and Rule 2330 compliance.

(f) Supplementary Material – Addresses additional operational and procedural details, such as fund handling and check processing.

In addition to Rule 2330, firms must comply with the SEC’s Regulation Best Interest (Reg BI), which imposes a broader obligation to act in the best interest of retail customers when making investment recommendations. Reg BI goes beyond suitability by requiring firms to prioritize customer interests and mitigate conflicts.

Member firms must:

• Establish and maintain written supervisory procedures (WSPs) tailored for deferred variable annuities
• Implement surveillance mechanisms to detect non-compliant conduct or patterns of abuse
• Ensure recommendations satisfy both FINRA Rule 2330 and Reg BI standards

Who does FINRA 2330 apply to?

FINRA 2330 applies to “recommended purchases and exchanges of deferred variable annuities and recommended initial subaccount allocations.” The rule applies to all member firms and associated persons making recommended purchases or exchanges of deferred variable annuities, including initial subaccount allocations.

What are some common FINRA 2330 violations?

FINRA’s “2025 Annual Regulatory Oversight Report” highlights a list of common compliance missteps uncovered during exams that firms should watch for:

• Unsuitable variable annuity exchanges
  Recommendations inconsistent with customer goals that resulted in higher fees or loss of benefits.
• Inadequate supervision of issuer buyouts
  Failing to supervise registered rep recommendations involving contract surrenders tied to issuer buyouts.
• Inadequate surveillance
  Not identifying patterns of excessive exchanges, such as identical annuity replacements recommended to multiple clients.
• Incomplete or poor-quality data
  Missing or inconsistent data related to annuity contracts, leading to ineffective reviews.
• Insufficient training
  Lack of training on cost-benefit analysis, exchange suitability, and rule application.
• Failure to assess alternatives
  Violating Reg BI by overlooking reasonably available alternatives to the recommended product.
• Reasonably available alternatives
  In violation of Reg BI, giving “insufficient consideration of reasonably available alternatives to the recommended variable annuity purchase, surrender or exchange.”

Penalties for FINRA 2330 violations

A violation of FINRA 2330 can result in serious consequences:

• Significant monetary sanctions that vary in amount, depending on the size of the firm and the type of violation
• Suspension or expulsion of firms or individuals may also result.

Best practices for complying with FINRA 2330

FINRA in its regulatory advisory report recommends the following effective practices for demonstrating effective measures for FINRA 2330 compliance:

Automated surveillance and supervision

• Use automated tools and exception reporting to monitor variable annuity activity
• Implement second-level supervisory review of exchange-related exception reports and transactions

Detailed rationales for exchanges

• Require specific written rationales per customer exchange
• Avoid copy-paste logic across customers
• Mandate supervisory verification of product comparisons and cost data

Clear guidance for retail customers

• Provide retail clients with clear, accessible materials that allow them to compare the fees, benefits lost or gained, and surrender periods for different variable annuities.

Review thresholds

• Standardize review thresholds for rates of variable annuity exchanges
• Monitor for emerging trends across registered representatives, customers, products, and branches

Automated data supervision

• Deploy automated solutions that analyze high-volume variable annuity data, including general product information, share class, riders, and exchange-based activity

Data Integrity

• Work with insurance carriers and third-party data providers (e.g., DTCC) to ensure data accuracy and integrity

Essential variable annuity data points to track

FINRA recommends establishing a supervisory system that collects and uses transaction data that includes:

• Transaction date
• Representative name
• Customer name
• Customer age
• Investment amount
• Whether the transaction is a new contract or an additional investment
• Contract type (qualified vs. non-qualified)
• Contract number
• Product issuer
• Product name
• Source of funds
• Exchange identifier
• Share class
• Commissions

For data analysis

FINRA also recommends considering the following data points when conducting a review of a recommended exchange transaction under FINRA Rule 2330 and Reg BI:

• Branch location
• Customer state of residence
• Policy riders
• Policy fees
• Issuer of exchanged policy
• Exchanged policy product name
• Date exchanged policy was purchased
• Whether the customer has had another variable annuity exchange within the preceding 36 months
• Living benefit value, death benefit value or both
• Surrender charges incurred
• Any additional benefits surrendered with forfeiture

How Smarsh helps firms comply with FINRA Rule 2330

Smarsh offers a unified platform of AI-powered compliance solutions designed to streamline your compliance processes, reduce manual workloads and ensure adherence to regulatory requirements. With Smarsh, you can:

• Capture every conversation. Archive communications across all your most important communications channels (email, messaging, voice, social, mobile) for complete visibility and compliance.
• Detect more real risk with AI. Use machine learning and customizable risk scenarios to surface suitability concerns, reduce false positives and flag misconduct faster.
• Customize and test supervision models. Build and refine risk detection logic with no-code tools like Scenario Builder and Scenario Evaluator.
• Scale with confidence. Trusted by global financial firms, Smarsh helps you meet regulatory expectations while managing growing communication volumes.

Related FINRA Resources

• Variable Annuities Topic Page
• Reg BI Topic Page
• Regulatory Notice 20-18
• Regulatory Notice 20-17
• Regulatory Notice 10-05
• Notice to Members 07-06
• Notice to Members 99-35