Direct Method is an approach to managing a variable product's separate account that utilizes which type of investment company?

Direct Method is an approach to managing a variable product's separate account that utilizes which type of investment company?

• A. an open-ended investment company created inside the structure of an insurer
• B. a closed-end fund managed by an independent adviser
• C. a fixed annuity inside the separate account
• D. a savings account with guaranteed return

Answer: (A)

Direct Method focuses on how a variable product’s separate account is funded and managed. In this approach, the separate account’s investment options are provided by an open-ended investment company that is created inside the insurer’s structure. This internal OEIC acts like a mutual fund, but it’s housed within the insurer, and the product’s subaccounts invest in its shares. This arrangement gives the insurer direct control over management and fees and keeps the investment framework tightly integrated with the insurer’s own fund structure. A closed-end fund wouldn’t fit because it isn’t open-ended and isn’t created inside the insurer for this purpose. A fixed annuity inside the separate account isn’t an investment company at all, and a savings account with a guaranteed return isn’t an investment fund within the separate account.

Direct Method focuses on how a variable product’s separate account is funded and managed. In this approach, the separate account’s investment options are provided by an open-ended investment company that is created inside the insurer’s structure. This internal OEIC acts like a mutual fund, but it’s housed within the insurer, and the product’s subaccounts invest in its shares. This arrangement gives the insurer direct control over management and fees and keeps the investment framework tightly integrated with the insurer’s own fund structure. A closed-end fund wouldn’t fit because it isn’t open-ended and isn’t created inside the insurer for this purpose. A fixed annuity inside the separate account isn’t an investment company at all, and a savings account with a guaranteed return isn’t an investment fund within the separate account.