September 6, 2008
Proposed Rule 151A is a result of broker-dealer pressure ...with their complaints a "guise" as they try to recapture trail commissions and management fees lost to the huge amount of money moved to Fixed Index Annities.
The SEC knows that a Fixed Index Annuity (FIA) is not a security and, if it thinks it should regulate FIA "sales practices", then it should also do the same with the mortgage, time share, and auto industry...for these other industries are a lot more deceitful than the few bad apples found in the life insurance industry.
I can remember when mutual fund salespersons got a 40% first year commission...which is no longer available today.
In the same manner, the life insurance industry has basically put a stop to FIAs that are not a true walkaway (after the surrender period is over) and now requires a SUITABILITY form to be completed and signed for all FIA sales. Seems to me the "clean-up" has taken place and will continue as the state insurance regulators keep an eye on FIA sales.
A recent newspaper ran the advertisement THOUSANDS OF INVESTORS IN MORGAN KEEGAN FUNDS WERE MISLED. Let's go back a few years:
"Morgan Stanley is being investigated by New York and Massachusetts securities regulators for allegedly pressuring its brokers to sell proprietory mutual funds to clients and for misleading regulators about the practice".
Citigroup Inc.'s investment banking division agreed to pay a $5 million fine Monday to settle charges it issued MATERIALLY MISLEADING research reports".
Bank of America and FleetBoston Financial have agreed to pay a total of $515 million to resolve allegations of improper mutual fund trading..."
Let's continue...fined was Janus Capital Group, Putnam Investments, Raymond James, Alliance Capital Management, Invesco Funds Group...need I say more. How about last year...my understanding is that the SEC handled more than 77,000 consumer complaints, questions and other requests in 2007.
I hear brokers make comments like "markets always comes back" and "now is the time to buy, while the market is down". Really All one has to do is look at the Nikkei Index of 225, back in 1989 and see where it is today. Aren't the DOW and the SP 500 basically where they were close to ten years ago? A friend states that the marke(s) are only "one international event away from dropping 20 to 25%".
Investing for the "long term" makes sense when you add the FIA ANNUAL RESET and ANNUAL LOCK-IN features. Don't know why the SEC makes a big deal about a 16 or a 14 year surrender charge for most retirees won't withdraw more than the 10% penalty free withdrawal in any one year (10% withdrawal, for ten years, means zero left). These surrender charges are what makes the great FIA product work
A FIA may not be suitable for an 80 year old...if not, neither would be a risky/volatile mutual fund or buying on margin. However, at least the 80 year old won't LOOSE his FIA premium due to a market downturn...while his mutual fund money has little security with a risky/volatile mutual fund or a margin call. I am appalled that the word SECURITY is used when mutual fund or stock shares suffered such a large devaluatiion during years 2001 and 2002 (those retirees, that needed income, got hammered, didn't they).
The SEC will have its hands full of complaints if stocks and mutual funds fall another twenty percent. Leave the life insurance industry alone for it is doing just fine.
Sincerely,
Roger Neal