July 10, 2008
The proposed regualtion contends that indexed annuities are comparable to variable annuities or mutual funds because their return is derived from a link to an external index, most often a stock market index. In reality, index annuities bear almost no similarities to variable annuities or mutual funds.
There is one critical difference between securities such as a variable annuity, mutual fund, stock, unit trust or other securities products and fixed index annuities: the principal is completely guaranteed in a fixed index annuity.
Alleging that a fixed index annuity is a security because the future results are not known and based on an equity index is faulty logic. Under that logic, a mortgage with an interest rate tied to an index would also be a security. There are life insurance policies where the minimum guaranteed interest is tied to indices such as the LIBOR. They too would then become securities.
The real "man behind the curtains" here is the economics. As fixed index annuities have become more widely accepted and distributed and as consumers have been drawn to the fact that they can earn competitive interest rates without exposing their principal to risk, the more revenue that has been diverted from the securities world, namely the members of the private group known as FINRA. When you hit a man in his pocketbook, he gets upset. Clearly FINRA has an axe to grind here. Their revenues are based on the dues of member firms which are based on member firm revenue.
One need not be a astrophysicist to see this. Or, one could declare that the emperor is wearing a fine regal suit.
I expect more of the U.S. government than to take a biased position on any regulatory action.