July 10, 2008
To whom it may concern:
I oppose the adoption of proposed rule 151a by the SEC for several reasons which will be outlined below and generally find that the SEC is exceeding its authority in creating this rule.
1. Fixed Indexed Annuities (FIA) are fixed products that people purchase for many of the same reasons they purchase other conservative savings instruments such as CDs or Fixed Annuities.
2. The SEC suggests that FIA purchasers bear the majority of investment risk for fluctuating market performance. This is completely untrue. Unlike equity products, the purchaser is NOT directly impacted by market fluctuations. Negative investment risk fluctuation to the purchaser is eliminated entirely. In a declining stock market, the purchaser's principal is preserved within the FIA.
3. FIA purchasers assume the benefits and rewards of a Fixed Annuity only, not those of an equity investor. Market fluctuations do NOT affect principal value or past interest credits.
4. Suitability regulations in most states and the sales practices required by insurance companies already meet or exceed the federal requirements. There is no need for federally mandated disclosure and sales practices. Complaint resolution through a department of insurance is much more effective that provided in securities law and FINRA arbitration proceedings. Rather than hiring an attorney and going to court, a consumer working with their local department of insurance receives direct representation at no cost. This is clearly an advantage for the consumer.
5. The complaint rate on FIAs is only one complaint for every $109 million in sales, as reported by the Advantage Compendium. Over the life of any annuity contract, the compensation is actually less than that of an investment advisor. Again this is a clear advantage for the consumer and does not promote abusive sales practices fueled by unreasonable commissions.
6. 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.
7. This rule will reduce competition and harm consumers. If adopted, only consumers who open brokerage accounts may access an FIA. Maintaining the FIA as an insurance product, which it clearly is, serves to increase competition and provide additional scrutiny in the marketplace, yet another clear advantage to the consumer.
8. Costs of creation and administration of the product will increase dramatically and reduce the value for FIA purchasers, as is ALWAYS the case when the federal government unnecessarily intervenes in an already well regulated market.
9. 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.
10. 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. This is clearly not about protecting consumers. Those protections are already in place with each state department of insurance.
Thanks very much for your time, and I again strongly encourage you to let proposed rule 151a die the quiet death is deserves.
Mark Dennis, CFP