Final answer:
Variable annuities must be registered with the Securities and Exchange Commission (SEC) due to their nature as securities which involve market risk. They are regulated to protect investors, requiring insurance companies to provide a prospectus and financial professionals to hold appropriate FINRA licenses.
Step-by-step explanation:
Variable annuities must be registered with the Securities and Exchange Commission (SEC). The SEC regulates these products because they are considered to be securities, dealing with the investment of funds and the expectation of profits.
Variable annuities offer a range of investment options and are tax-deferred retirement vehicles that can provide a stable income stream for individuals' post-retirement years. Investors participate in the performance of the underlying investments, which typically include stocks, bonds, and money market funds.
This investment component introduces a level of risk, as the value of the annuity can fluctuate based on market conditions, hence the need for regulation by the SEC.
Insurance companies that issue variable annuities must provide a prospectus to potential buyers, informing them about the annuity's investment options, fees, and other important information.