October 31, 2008
I am concerned about the proposed rule 151A regarding Fixed Indexed Annuities (FIAs). First of all, I consider them a valuable and safe product in a world currently filled with uncertainty and financial hardships. This product gives consumers guagantees which should not be overlooked.
They also allow for flexibility, tax-deferral and many other advantages. I know FIAs are not for everyone, but what product is.
Where appropriate these products give consumers a safe product that can allow for the opportunity to earn higher returns than traditional fixed products, while at the same time not forcing them to be imersed in the securities market. I can tell you from personal experience, that ny Broker Dealer with just the thought of more regulation on this product, has severly limited what products I can sell and what companies I can represent. As an independent broker, with many years of experience and constant training up through and including a series 53 liscense, I am appalled that I am restricted from anything my clients and I believe may be in their best intrest. More regulation of this product as a security when it in fact is not only creates more unessary regulation, expense (for companies and government) and limitations on field agents which ultimatly will not benifit the consumer or the insurance industry.
You must consider that proposed rule 151A is ill-conceived. Many securities lawyers find the SEC proposal to
be confusing and completely unsupported by judicial precedents on what makes an
annuityexempt from securities laws. Beyond that, it defies common sense that a product
which has virtually no market-related downside risk should be considered a security in the same manner as mutual funds or variable products which the investor bears the risk for market losses. I feel this is a dangerous precedent that could lead to re-classification of other annuity products as securities, which in my opinion would furthar disrupt an industry which is already struggling to service and assist clients confused by recent events and in dire need of direction and open choices. It does not seem in line with congressional intent.
Keep in mind that FIA products are already heavily regulated by state insurance departments. Through the NAIC,
state regulators have worked hard over many years to come up with appropriate suitability
and disclosure requirements for FIA products. To the credit of state insurance regulators,
this work continues today and should not be derailed by the SECs unilateral action.
The FIA market is growing rapidly because of demend for the product. It is probable that this new proposed regulation has come about because of abuses in selling this kind of product. However, any good financial product has the potential to be abused by bad representives including currently regulated products. Additional regulation will not stop dishonest people. Regulation will however make it harder for honest people to sell and promote these and other products by adding additional liscensing and reporting weight on an already heavily encumbered sales force. My experience in selling FIA's is that in general consumers have been pleased with the product and the outcome of owning it. They have been equally please that there is another choice besides the traditional fixed annuity, variable annuity, Cd's, and straight equities. While I'm sure there have been some inappropriate sales of FIA"s I believe this has been properly addressed by regulations already in place which have addressed lowering surrender charges, shortening surrender periods, and better disclosures icluded in applications.
You need look no furthar than the recent downturn in the stock market to understand the value of FIAs. While millions of
Americans suffered financial losses as a result of a massive drop in the stock market, FIA-holders have not lost a penny in retirement savings because of market turmoil.
FIA-holders have peace of mind that market fluctuations do not adversely affect their
account values.
.I believe the bulk of the agents representing FIA's are honest and caring individuals, and I know most to be professional and giving to the extent of amazament, despite critics attempting to paint our entire industry as scavengers and opertunists.
Furthar, I believe the SEC proposal has not been appropriately vetted for comment—and appears to be
rushed for adoption. With virtually no forewarning, the SEC unveiled this proposal on
June 25 and has allowed for comments only until September 10. This means a proposal
with profound effects on the insurance industry could become law within just a couple
of months even though agents and insurers have had minimal opportunity to evaluate,
comment and possibly offer alternative approaches to address any valid concerns. This
sudden action comes ten years after the SEC first identified issues left dormant as the
FIA market grew and evolved. I urge that a proposal this important and far reaching not be rushed or adopted hastily.
Thank you for your attention to my concerns
Frank Santo
IAR American General Securities
OSJ