Hi guys! I am studying for the SIE from the finra outline. On the section understanding products and their risks (municipal fund securities). Not sure what knowledge of surrender charges, net transactions and restricted use of plan assets means. Can’t seem to locate in Achievable. Would appreciate any input!
In regards to surrender charges, these are assessed on insurance products (typically annuities). They work very similarly to contingent deferred sales charges (CDSCs) on Class B (back end) mutual fund shares. In fact, here’s what we write about it in our Series 6 and 7 programs:
A deferred variable annuity typically involves a lengthy accumulation phase with the intention of annuitizing the contract several years later in retirement. Many times, these types of contracts involve hefty surrender charges and/or taxes if distributions are taken early.
The amount of time that must elapse to take distributions from an annuity without a surrender charge
For example: An investor places $40,000 into a deferred variable annuity with a 6 year surrender period. Surrender charges start out at 6%, then decline by 1% every year the contract is held (similar to contingent deferred sales charges (CDSCs). After 6 years, the surrender period is over and the investor can take distributions without surrender charges (although taxes will still apply).
We don’t include this material in our SIE program because we believe there are “bigger fish to fry” (although you will likely see it covered on the Series 6 and 7). We don’t disclose our methods for determining what we do and don’t teach, but our materials would be hundreds of pages longer if we included everything mentioned in the FINRA outline. The same goes with net transactions - bigger fish to fry.
“Restricted use of plan assets” relates to ERISA-governed workplace plans and restrictions on companies using their employees’ retirement funds for corporate expenses. For example, a company providing a defined benefit pension plan to their employees would be breaking the law if they borrowed pension funds for corporate purposes. We briefly discuss this in the ‘Funding’ section of the chapter covering ERISA (linked above). Although we have a small snippet on this in our materials, this is another “bigger fish to fry” section.
Hope this helps!