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The NASD is a self regulatory organization with a very thick manual of rules and regulations. Even so, some gaps in supervision exist, especially when dealing with complicated products like variable annuities and variable life insurance. Often, people simplistically describe them as "mutual funds in an insurance wrapper," but this only touches on the profound difference between the mutual fund and variable product sales and supervision process.
As required by Rule 3010 (a) (see sidebar), most broker-dealers have instituted procedures to review and approve each and every daily stock and mutual fund transaction performed by their salesmen. The review is designed to "flag" those trades that are outside of their system-wide parameters set up by their compliance departments. These systems penetrate to the level of the individual investor.
For example, investors whose new account form was marked conservative or moderate would have their accounts flagged when a trade comes through the system that did not conform to the customer's assigned risk tolerance and …