The regulatory issues cover the stipulation of basic conduct rules, the creation of a centralized database, the regulation of broker commissions, the prevention of deceptive pricing practices, and the prohibition of perverse marketing campaigns.

# **6.2 Basic Conduct Rules**

The first requirement of an effective regulation of marketing in a decentralized competitive market is compliance with basic conduct rules, such as the „know-your-customer‟ rule and an adequate disclosure of the terms and conditions of different products. However, because life annuity products are highly complex, there is also a need for extensive training of agents and brokers. In addition to adequate training, brokers need to pass a certification test as well as the standard „fit and proper‟ test. Licensed brokers must be legally obligated to represent their clients, must generate their income from commissions on the sale of annuities, and must not be permitted to accept volume-related remuneration from insurers.

# **6.3 Creation of Centralized Databases**

Adopting a centralized electronic quotation system, such as the one introduced in Chile in 2004 (Rocha and Thorburn, 2007; Reyes and Stewart, 2008), merits serious consideration. This is a centralized service that compiles and validates individual data on retiring workers and solicits quotes from participating institutions. Such a system reduces the influence of brokers, lowers the search costs of retiring workers, enhances the quality of information available to them, and ensures broad access to competitively-priced annuities.

An electronic quotation system is essential in the case of fixed nominal or real annuities as well as escalating annuities, but it can also be useful for all kinds of variable payout annuities. It can facilitate the comparability of different offers and underscore the various types of guaranteed benefits and the charges that are levied for each type of benefit.

However, to strengthen competition in the market for variable payout annuities, the central register should also compile comparative data on a consistent and informative basis on the performance and bonus policies of different providers. This will enhance the transparency of the system. The register should focus on key aspects of pricing policies and performance, such as profit-sharing rules, levels of operating costs and fees, commission fees and surrender charges, and consistency and soundness of investment policies rather than on a mere reporting of past performance data. At the same time, annuitants should be encouraged to select providers with diversified investment portfolios, a consistent record of sound performance, low operating fees, and high profit participation rates. Focusing on recent past performance, which is often underscored by selling agents, is not sound practice since past returns are not good predictors of future performance.

A central register along these lines is easier to operate for participating policies where the number of factors that need to be followed is relatively small. It is a much greater challenge in the case of US-style variable annuities with their wide range of guarantees. In recent years various websites have been created that compile such data. What is needed is effective regulatory 27