October 29, 2008
I am a registered securities representative and it would not affect me personally if Index annuities were deemed as a security under SEC, but in no way shape or form are these vehicles a security. The inherent nature of a security involves market risk of some sort to the investor, and not one Index annuity that I am aware of does that. It is absolutely a fixed product that simply uses a formula based on a calculation of a change in a particular market index ( whether it be the DOW, SP 500, NASDAQ or LEHMAN BOND INDEX) to determine what interest credit will be applied in a partucular year, or whatever time period is used. The annuity purchaser/client is not participating in the index nor are any dividends being received since the funds are not even invested in the indexes themselves.
The mentality being used to classify an INDEX Annuity as a security is not close to being valid, and for that matter you would need to consider all fixed annuities, maybe even CDs or savings accounts as securities then because the interest being credited is ultimately backed and determined by the underlying investments of the insurance company or bank, as well, which in many cases are bonds, common stock, preferred stock, commercial paper, etc.
I am 100% for protecting the interests of clients, and have made complaints against other unscrupulous agents not explaining anindex annuity correcly to certain of my clients, but classifying the index annuity as a security is not the answer but rather a blank attempt to regulate those unscrupulous agents at the expense of many honest and reputable insurance agents and their relationships with their clients.
My Broker Dealer currently makes me submit all index annuities through them, and all this did was simply put more money in the BD's pockets. I do my own suitability annalysis for every client on every investment whether it be a fixed annuity, variable annuity or mutual fund, in addition every insurance company I use now has very through Suitability Disclosure forms that must be completed for each "investment" not just for each client.
The Index Annuity is no doubt a fixed annuity with principle and interest guarantees and NOT A SECURITY, according to the letter of the law, and should maintain it's current status and be regulated by the Insurance Industry not the SEC.
Thank you for taking time to listen to my thoughts and hope that you reconsider the path that the SEC is heading down.
Sincerely,
Richard P. Morrow