August 28, 2008
I have been an independant insurance agent since 1969. I practice Estate, Business , Retirement, and Insurance planning.
Indexed Annuities are fixed annuities that have a declared minimum interest crediting rate with potential to earn interest credits in excess of that guarantee. As a result, any fixed annuity that has a minumum interest rate guarantee means the consumer has no risk to principal or any prior years interest earnings. The security act of 1933 specifically states that in order for a product to be classified as a security any risk must be borne by the consumer. If you have a minimum interest rate guarantee included in any product it is NOT a security.
In addition the design and sale of annuities are highly regulated by state insurance departments as are the companies that market them.
When I recommend a Fixed Inexed Annuity I have to read and fill out a strict disclosure form signed by me and the client to make sure that first, the client understands why the annuity is in their and there families best interest, how the annuity protects them from lose of principal and prior earned interest credits, what the surrender charge is and liqudity features, that this is a long term committment, and make sure the client has other liquid funds avalible to them should they need them. In addition I must make sure that their assets and liabilities will not have a negative impact by the purchase of an annuity.
The guarantees provided by an indexed annuity offer consumers significant protection against market risk. Just look at the market today. The DJIA has suffered a decline in excess of 20% from its October 2007 record, jet a fixed indexed annuity consumer will not lose any principal due to this market decline, unlike a consumer of an equity security or a stock mutual fund or a variable annuity.
And by the way, almost all complaints by a consumer about annuities has been because they purchased a variable annuity. Indexed Annuities are fixed and are not securities.
This proposed rule is really about broker dealers who are concerned that they are not getting a lions share of any commission and they know that consumers are tired of losing their hard earned dollars invested directly in the market. The broker dealers are losing funds from their security products because consumers cannot afford the loss and want to insure that their money is in a safe place, and when they retire they will not only have enough money but with an annuity they can take an income they will never outlive.
I do not know of any other fixed product that can guarntee no loss of principal or gains and a lifetime income to both spouses.
Two years ago I decided to try and work in a Merrill Lynch office and learned and saw some interesting trends and concepts. I had their stock brokers coming up to my desk who have 10 - 20- 30 years experience within 3 days of my being at a desk and asking me about Estate Planning concerns for their clients and families. I was shocked that these broker dealers were telling their clients that they did estate and financial planning when they had little or no knowledge in this field. What they really did was do trades that they recommended, little or no insurance or annuities were used to protect their clients.
I was told by management that they had a strong estate planning program but found out that one person in the state was a go to person who knew some things about a living trust but had no Estate Planning attorney to work with or any other knowledge on haw estate planning works.
Now I write this to make this statement. It has been my experience in the last 40 years in this business that most insurance agents don't sell products just to earn a commission. They understand Estate and Financial Planning concepts and take a hard look at what the potential client is trying to accomplish now and in the future. Based on thier findings they begin to search for products that can help the consumer reach their goals. There are several ways that life, annuity, long term care, health, critical illness and other insurance products can be used to fill those needs. Fixed Indexed Annuities is one of those products and I can state that insurance agents who use them to help a consumer, know what they are doing and have the consumers best interest in mind.
We do not need your help in protecting the consumer. The insurance agents understand when and how to use these helpful products. Our state insurance departments and insurance agents know these products better than any broker dealer who rarely use them to protect the consumer. I know, I saw it first hand.
This proposed securites rule will add little benefit to protection for the consumer or education for insurance agents.