September 4, 2008
I am opposed to regulating a fixed index annuity as a security rather than an insurance product. My primary concern is that this is overkill. Having worked with hundreds of people over 13 years in the financial services business, I can tell you horror stories about the misled, deceived and defrauded clients I've discovered till the cows come home. But, of all those I have encountered, the overwhelming source of the fraud was caused by brokers and/or products regulated by the securities industry. Anyone who examines this issue carefully will realize that if any area needs more scrutiny, it is the sale of securities.
Changing fixed indexed annuities from insurance products to securities will effectively eliminate them as a viable option for people desiring a safe place for their money without the relatively low returns of CD's and like products or the off the chart risk of the securities market.
As with any industry, there are those marketing fixed index annuities that are misrepresenting them. Why not continue to crack down on the perpetrators rather than throw the baby out with the bath water.
The reason sales of fixed index annuities have soared in recent years is because they are a good product with excellent features and benefits that are desired by many.
Changing them to securities will force the companies that offer them to change them into something totally different.
Other reasons:
1. Recent events: the auction securities debacle, Spitzer skewering brokers should bring attention to the fact that the answer to many problems is not to add another layer of regulation but rather enforce the ones we have be they state or federal, insurance or securities regulations. A good example of overkill is the prospectus. Does anyone believe that a securities broker explains the contents of a 600+ page variable annuity or mutual fund prospectus in detail to a client. Many people believe that the only ones who have read a prospectus in detail are regulators and the lawyers who wrote it.
2. Insurance products ie: fixed annuities are insurance products, regulated by the states, not securities to be regulated by the federal government. This has been ratified by the courts for over a century.
3. Complaints about variable annuities (a security) far outstrip those about fixed index annuities (insurance product) Investors in variable annuities can and do lose principal. The complaints are so great that a number of states are looking at regulations forbidding the sale of them to seniors.
4. It has been alleged that fixed index annuities are an investment and based on that they should be regulated as a security. A logical extension of that line of reasoning says that since I made choices about where to put my money (invest) when I bought my home, car, cd, savings account that they should all be registered as securities, too. Any decision about where to use money is an investment decision and many are more complex and uncertain than a fixed index annuity.