Subject: File No. S7-14-08
From: Paul Magnotte

July 10, 2008

I am concerned with the SEC further regulating Fixed Index Annuities.

The FIA is a fixed product and people purchase the product for many of the same reasons people purchase savings instruments such as CDs or Fixed Annuities. They are not interested in products that can loose value should the markets go down. They would rather have the safety of their principle and a possibility of additional growth.

The SEC suggests that FIA purchasers bare the majority of investment risk for fluctuating market performance. This is plainly wrong, I have had clients who now have not lost 20% of their savings due to the current market decline. In fact, they have made money while the market declines by shifting to the fixed interest options available.

The SEC suggests that FIA purchasers assume many of the risks and rewards that investors assume. FACT: FIA purchasers assume the benefits and rewards of a Fixed Annuity. Market fluctuations do NOT affect principal value or past interest credits.

The SEC suggests that federally mandated disclosure and sales practices are needed. FACT: Suitability regulations in most states and the sale practices required by insurance companies already meet or exceed the federal requirements. Complaint resolution through a department of insurance is much more effective that provided in securities law. Rather than hiring an attorney and going to court, a consumer working with their local department of insurance receives direct representation at no cost.

The SEC suggests that abusive sales practices are fueled by outsized commissions. FACT: The complaint rate on FIAs is one complaint for every $109 million in sales according to the Advantage Compendium. Over the life of any annuity contract, the compensation is actually less than that of an investment advisor. Considering how often major brokerage houses are fined and complained on, the Fixed Annuity record is very favorable compared to them.

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. A security would imply the investor would lose money in a market decline. That is not the case with the vast majority of FIA. Purchasers of FIA are not investors with the money they have in the FIA, my clients are informed that they are in a savings program where they are protected from market declines.

The SEC document states there will be increased competition by adopting this rule. This rule will reduce competition and harm consumers. If adopted, only consumers who open brokerage accounts may access an FIA. Quite frankly, that is not the case, it would limit the competition by reducing the people who could sell the product.

Costs of creation and administration of the product will increase dramatically and reduce the value for FIA purchasers should they only be open to those who open brokerage accounts. One has only to look at the abuse of the 12b1 fees to see the future of FIA's should they be
under total brokerage control.

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.

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. The SEC is being inappropriately influenced by securities dealers through their trade association (FINRA). These dealers are seeking to gain control of additional sales volume to increase their revenue. This is clearly not about protection consumers as those protections are already in place with each state department of insurance

Thank You,

Paul Magnotte
Roseville, MI
paulmagnotte@msn.com
313-917-5501