September 5, 2008
OPPOSITION to SEC proposed rule 151A
Im writing to register my STRONG OPPOSITION to SEC proposed rule 151A
I do NOT believe that the facts support a change in jurisdiction of a Fixed Indexed Annuity from the departments of insurance in each state to the SEC.
Primarily because of their safety and minimal risk they are correctly currently categorized as Fixed Annuities and should remain under state insurance jurisdiction. Some of my other top reasons are outlined below:
The SEC suggests Fixed Indexed Annuities are purchased for many of the same reasons individuals purchase mutual funds, variable annuities and brokerage accounts.
My position (and EXPERIENCE) is that more often people purchase a Fixed Indexed Annuity for many of the same reasons they would purchase savings instruments such as CDs or other Fixed Annuities - the safety of principal.
The SEC suggests that Fixed Indexed Annuity purchasers assume many of the risks and rewards that investors assume.
My position is that this is absolutely NOT true, in part because market fluctuations do not affect principal values or past interest credits. This means that while the purchaser may enjoy some of the reward, they certainly do not assume the same level of risk.
The SEC suggests that abusive sales practices are fueled by outsized commissions.
Over the life of an annuity contract, the compensation an insurance agent receives on the annuity product may actually be less than what an investment advisor would receive on an investment of similar size. Abusive sales practices happen in ALL industries and the crackdown should be on
those practices, not on the industry as a whole
The SEC suggests that federally mandated disclosure and sales practices are needed.
The suitability regulations in most states and the sale practices required by insurance companies already meet or exceed the federal requirements. Additionally, consumers of insurance products are able to work directly with their state departments of insurance for assistance when it is necessary, usually without the need to hire an attorney.
The SEC mentions case law regarding the evaluation of whether a Fixed Indexed Annuity is a security.
Interestingly, they fail to mention that the judge in that case, Malone v. Addison Ins. Marketing, found that a Fixed Indexed Annuity is not a security.
I am also adamantly against this proposed rule due to its stated costs to implement. The estimated negative economic impact to small agencies within the insurance industry is expected to be well in excess of $100 million.
Thank you for your serious consideration and COMMON SENSE action.
Sincerely,
Michael K Duffey
Wisconsin