July 10, 2008
I believe that the consideration of making fixed equity indexed annuities is a grave injustice to the average citizen purchasing these needed products. As an agent of 25 years experience, with previous securities licensing, there is no reason I can see that this product should be classified as a security, except that the greed driven lobby of securities dealers has put too much pressure to drive this forward.
The annuity 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.
Unlike true security products, the purchaser is NOT directly impacted by market fluctuations. Negative investment risk fluctuation to the purchaser is eliminated entirely.
Purchasers of these products assume the benefits and rewards of a Fixed Annuity. Market fluctuations do NOT affect principal value or past interest credits.
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 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.
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. It's an appalling. This would put people into the manipulative hands of people in the security industry who routinely churn business. Average people would be intimidated by the implied sophistication of investment houses.
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.
Jeff Markovic
Cincinnati