September 3, 2008
Please let it be known that I do not agree that the fixed annuity should be a product regualted by the SEC as it truly is not something that poses a risk to investors, such as mutual funds or lthe like...i.e., brojerage accounts. Please consider this. I am an agent in the insurance business and have been offering my customers life inurance and annuities for many years. While I once did have a series six, it has long since lapsed and I have focused my business mainly on insurance products. The FIA surely is STILL a fixed product, similar to that of a regular fixed annuity, but allows my customers the opportunity to gain if the market does well without taking the risk of losing thier principal. The key ingredient that I feel makes this to NOT BE under the perview of the SEC is because it is backed by the insurance comapanies, similarly to money invested in a bank where the bank backs the security of the principal. Further, there is already much regualtion in the insurance industry, starting with, but not exclusively, the continuing education requirements. It's importnat to note that the these CE credits require ethics education every two years. In this way, it can be considered even more regualted as the frequency of testing is ongoing compared to taking a test for the SEC once. Plainly, any further regualtory requirements would restrict my business from servicing my customers as needed as I work alone and cannot currently fulfill the requirements for SEC licencing, with the taking of tests, etc. Other considerations for you to reasonably forego further SEC consideration to regulate are as follows.
A.)I am aware that the SEC suggests the Fixed Indexed Annuity (FIA) is purchased for many of the same reasons individuals purchase mutual funds, variable annuities and brokerage accounts. FACT: The FIA is a fixed product and people purchase the product for many of the same reasons people purchase savings instruments such as CDs or Fixed Annuities.
B.) The SEC suggests that FIA purchasers bare the majority of investment risk for fluctuating market performance. FACT: Unlike true security products, the purchaser is NOT directly impacted by market fluctuations. Negative investment risk fluctuation to the purchaser is eliminated entirely.
C.) The SEC suggests that FIA purchasers assume many of the risks and rewards that investors assume. FACT: FIA purchasers assume the benefits and rewards of a Fixed Annuity. Market fluctuations do NOT affect principal value or past interest credits.
D.) The SEC suggests that federally mandated disclosure and sales practices are needed. FACT: Suitability regulations in most states and the sale practices required by insurance companies already meet or exceed the federal requirements. Complaint resolution through a department of insurance is much more effective that provided in securities law. Rather than hiring an attorney and going to court, a consumer working with their local department of insurance receives direct representation at no cost.
E.) The SEC suggests that abusive sales practices are fueled by outsized commissions. FACT: The complaint rate on FIAs is one complaint for every $109 million in sales according to the Advantage Compendium. Over the life of any annuity contract, the compensation is actually less than that of an investment advisor.
F.) The SEC mentions case law regarding the evaluation of whether an FIA is a security but fails to mention the judges' findings. According to the judge, in Malone v. Addison Ins. Marketing, an FIA is NOT A SECURITY.
G.) The SEC document states there will be increased competition by adopting this rule. This rule will reduce competition and harm consumers. If adopted, only consumers who open brokerage accounts may access an FIA.
F.) Costs of creation and administration of the product will increase dramatically and reduce the value for FIA purchasers.
G.) This change will cause a negative economic impact well in excess of $100 million to small agencies within insurance industry. This violates the Small Business Regulatory Enforcement Fairness Act of 1996.
H.) The SEC is focused only on declaring products a security if the sales volume is significant. They fail to consider Indexed CDs or Indexed Universal Life in this rule. The SEC is being inappropriately influenced by securities dealers through their trade association (FINRA). These dealers are seeking to gain control of additional sales volume to increase their revenue. This is clearly not about protection consumers as those protections are already in place with each state department of insurance.
Please pay particualr atention to these last two items, G H. My agency is me, alone. This will have a seriously negitive impact on my agency and my clients as well. I believe that the the best interests of the consumer are served well under this current system and item H describes why there is emphasis to make a change.
Thanks,
Harry Finley