Subject: File No. S7-14-08

October 20, 2008

I am opposed to the SEC regulating fixed-indexed annuities as a security– proposed rule 151(A).

Fixed Indexed Annuities is an insurance product, not a security.

Based on the SEC and FINRA’s poor track record of supervising members and securities over the past 70 years, I don’t think there is much room to regulate something else. Regulating something poorly is the same as not regulating it at all. In this case the SEC would be taking regulation from capable hands (the State Insurance Divisions) and promptly dropping it. Perhaps concentrating on what is currently on your (SEC’s) plate already (and the MANY things on your backburners you have not enforced or haphazardly enforced for various reasons) would be best for all of us who are securities and insurance licensed. In light of the controversies surrounding the financial markets, it seems as though there is plenty else to do. Maybe picking this conversation up when the SEC isn’t so overwhelmed and under-manned would be more appropriate.

I have not doubt both securities reps and insurance agents are doing wrong on a daily basis. That is unfortunate. Whether good or bad, we all should be supervised. My preference is for SEC and FINRA to cooperate with the individual states to monitor and enforce the current rules and laws. This would go a long way to proving to me that the SEC is serious about enforcement because there would be accountability on several sides (Fed, State, SROs). It wouldn’t need to be a territory war at all. It would be a better, more hands-on enforcement. You could be proactive instead of reactive. Your goal out to be ZERO complaints because your work is so fair and thorough that reps/agents dare not break the rules for fear of losing their licenses and being barred from practicing.

The following cases are where I find the most trouble or abuse:

1. Insurance agents who are NOT securities licensed instructing clients to sell their stocks or mutual funds to fund life insurance or annuity contracts (regardless of fixed or fixed indexed).

2. Securities and insurance licensed reps who are switching clients out of one annuity to another as soon as they are out of surrender period. There may be many good reasons for doing this, but they should be documented and agreed to by the client in writing. **

3. Insurance companies and Insurance Marketing Organizations promoting the sale of annuities but focusing presentations around compensation (commissions) and agent success stories (how much premium they wrote and their commission check) and treading very lightly or not at all into the actual workings of the product. Many of these are CE approved courses, or they are programs offering free CE credits but geared towards promoting sales of certain products. We all like to be paid, but if that is an advisor/agent’s first concern, the SEC and the States should be working together to run these people out of the business by not renewing their licenses.

4. Part-time agents/reps. While it is difficult to enter the business, it should be. The reason that securities and insurance people get a bad name are for all the people who are full-time teachers and part-time insurance agents or full-time doctors and part-time financial advisors, etc, etc. If we crave respect that attorneys and CPA’s have, then do not allow part-time professionals. Part-time professionals in this business should be in the twilight of their career, not the beginning. There are plenty of opportunities to work for reputable firms in a full-time capacity. While there may be exceptions to the rule, I personally know of no part-time doctors, attorneys or CPAs.

If we regulated the business appropriately, you’d not have people selling insurance or investments and also actively engaged in a W-2 paid occupation outside the insurance/securities industries. People who own real estate or other business ownerships would be exempt. Entrepreneurs create jobs and wealth and that shouldn’t be discouraged. But if you have a job where you make $30,000+ (pick a number between $1 and $1 million) and then you sell investments or insurance on the side to make more money then you tend to not be devoted to clients, client care, and to appropriate continuing information classes to improve yourself and the profession. A true professional would commit to that business fully, even if it meant working on salary for a time to gain the appropriate licenses, experience, etc that might be needed to become a full-fledged and self-sufficient rep/agent.

** I have run into several situations where agents have made questionable transfers, etc (fixed annuity to VA; VA to VA; mutual funds to FIA or SPIA) and the onus is always on the client to fill out reports and make complaints. Many of these cases, I was able to get money back for clients so they lost out on nothing more than opportunity cost of an investment. However, with no injury to the client, why would a client pursue all the hoops set up to turn in a rep/agent? My client interactions in these cases should be scrutinized just the same. But I’m confident in the time I spend with a client and the documentation I make regarding a transaction that it should be able to stand up to intense scrutiny. I’m not confident these advisors could justify their actions in the ones I’m familiar with. In every case, the advisor never even left paperwork with the client, nor could they produce signed documents in a timely manner. Worst of all, they couldn’t answer simple questions about rates of return or the amount of compensation they received for the transaction.

I find it laughable that there is virtually no way to shine a light on the grey activities of many agents. Broker Dealers refuse to get involved. They refuse to let the advisor/rep/agent get involved in the complaint. So the onus is always on the client. Half the time the client didn’t even know they were been taken advantage of. Other times, they were suspicious, but knew they didn’t know as much as the agent. Now all of a sudden they need to become experts on their own, or hire and expensive attorney to file a complaint while I sit around twiddling my thumbs and refusing to help? That is asinine. What a backwards way of doing things. That is just one more reason for the SEC not to be involved in new enforcement. Work with the States to enforce the current rules. Work with Broker Dealers to allow more self-regulation and for reasonable complaints to be filed. If the transaction is legitimate, then the complaining advisor would likely lose any future business to the advisor who was questioned, but proved thorough in their review process. They would have nothing to hide and would get to prove how much they are looking out for their clients.

In closing, the SEC should not re-interpret the description of fixed indexed annuities to try to turn them into securities. The bastardizing of the definition, in light current hysteria over the use of FIA’s in some situations has the appearance of being done for the benefit of the SEC alone, not the consumer. If the SEC isn’t capable of having an open, honest discussion about the merits of their case, then I don’t believe it is possible for the SEC to begin making an informed decision about what an insurance product is or isn’t and what an investment product is or isn’t. This smacks more of a federal power grab than an actual protection of the consumer. As a dually licensed rep, I have everything to gain by shutting out insurance-only advisors so as to enhance my own practice. But just because I would benefit, doesn’t mean it is the right thing to do. That is a selfish attitude and an unhealthy attitude towards competition.

Insurance is insurance. If the agents are licensed to sell insurance and have the appropriate licenses, ethics training and follow the additional rules for opening FIA contracts, then they are doing what they are supposed to. Having an insurance license doesn’t change that. Not having a securities license doesn’t change it. It does make it more difficult to figure out how to convince clients to cash out their mutual funds, 401k and VA’s without a securities license. But with proper regulation and cooperation between SEC, the States, and SRO’s like FINRA, this should be too difficult to monitor and enforce.

Do not adopt Rule 151(A) as it will turn into yet another tarbaby for the SEC and make everyone in our business look greedy and stupid. In the end, the Consumer is the loser as they’ll end up with less protection.

Please contact me if you need further clarification or have additional questions for me.

Craig Adamson CRPS, PRP
President
Adamson Financial Planning