August 15, 2018
During a recent conversation with the Division of Investment Management, we discussed the relevance to underlying funds in Variable Products as it relates to Rule 30e-3. Although we agreed that preference is stated on the contract level for document delivery, it is still the SEC's belief that 30e-3 applies to underlying funds. With the SECs expressed goal for all funds, VA/VUL underlying funds included, for the notification to serve as the paper delivery, requiring the investor to choose to continue to receive documents through the mail. We discussed at length our feeling that this was contradictory to the current VA/VUL model where preference is based on the contract level and may conflict with the contract owners stated preference. The SECs position is that the investor is not being required to state a delivery preference if once they receive the mailed notifications and receive shareholder reports electronically. Only if they opt into paper would they have to state a preference. We expressed the concern that the contract holder does not have a direct relationship with the fund company so it may limit their ability to communicate a preference.
The SECs position is that the paper notification is replacing the paper shareholder report, with the documents being available on a website. We also discussed the additional disclosure/notification and how it would be provided to the VA/VUL company for delivery to contract owners. We believe this interpretation places the VA/VUL contract holder at a disadvantage, with the expectation of requiring the holder to state a preference when the delivery model has been in place and assumes a preference. An unintended consequence of the rule would be the expectation of a contract holder to communicate with an entity to which they do not have a direct avenue of contact. We have received numerous queries from clients seeking clarity around the ruling. Although we agree in context that Rule 30e-3 has merit, we feel it should not apply to VA/VUL products for reasons stated above.