July 10, 2008
It is about time that the SEC regulated Indexed Annuities (IA) and other fixed annuities as securities. In my years as a financial planner, I have heard many clients complaint that they were mislead when they purchased IAs or were the subject of aggressive sales tactics involving IAs. I have seen these products being promoted as a way for clients to benefit from "market" performance without downside risk. Truth is clients will never truly receive the full benefit of market peformance because of the caps on most of these products but this part is almost always omitted. Those of us who understand how the markets work know that if you put an 8% or 9% cap on the "good years", the cap destroys the long-term average. Worse, some of these IAs have surrender charges of up to 15 years. Make no mistake, the main reason these things are sold so heavily is the high commissions they pay and the fact that they can be sold by almost anyone. I have seen and heard reps who don't even have a clue as to how the interest rate crediting works. In a way, I don't blame them because every company has a slightly different system to figure out the interest rate credit and it is usually complex.
At any rate, it is time to bring some order and discipline to this wild west of fixed annuities before it tarnishes the entire industry. Thanks.