Subject: S7-14-08 - Comment on proposed rule 151A on Equity Indexed Annuities

October 31, 2008

I am an insurance agent and a Series 7 registered rep of Questar Capital, a securities broker-dealer.

I am a one-man small operation, and have sold a number of Equity Indexed Annuities because I believed the features of the product was a best fit for my clients in those circumstances. As it turns out, in every case I was acting as an insurance agent when I sold those EIA products and the process was easy and quick; since my broker-dealer has begun supervising rep sales of EIAs, I have not had a client with the need for an EIA, but I still believe in them and will sell them when the client need dictates. I believe those EIAs I sold have served my clients exceedingly well in the recent market dive, but there was zero securities-level supervision or oversight at that time.

I have heard insurance company and agent conversations along the line of “There's NO securities license required and NO underwriting!!!! All you need is an insurance license and you can get a piece of the investment market.” This should be no surprise to anyone.

The current tug-of-war between the insurance and the brokerage industries seems to be motivated by the financial rewards involved in EIAs, and the arguments centering on definitions of what is a security and what is an annuity are, in my opinion, a facade. I would submit those arguments are all wrong.

I have witnessed marketing discussions among insurance agents for equity indexed annuities, good products from good companies, and the planned sales pitch always centered on a discussion of investment risks and objectives, how to achieve part of the market gains while protecting yourself against possible loss and sales talk that focuses on S&P 500 issues and history. Personally, I have the Series 66 and Series 7 and am supervised on securities matters, but when guys with only an insurance license stray into discussing investments eagerly and without the proper supervision in order to sell EIAs, you know where that leads.

There is no selfish motive here on my part pushing for EIAs to be classified as a security because it puts more gateways, procedures and headaches in the process of selling an EIA, not to mention a haircut on the commission. From the first time I reviewed EIAs as a product I might sell, I have thought EIAs should be classified as a security not because of any definitions, but because of how they are marketed by insurance agents untrained in securities matters, how the sales discussions go when the doors are closed, how the sales discussion HAS TO GO simply because the product performance is tied to market performance.

You can’t sell an EIA tied to securities market performance without talking about the securities market. Without proper securities supervision the customers are the ones who pay the price, and that should be the ultimate reason for classifying EIAs as securities, not semantics or definitions."

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Terry L. Garlock, CFP
President
Garlock Associates, Inc.