Subject: File No. S7-14-08
From: John C Beidle
Affiliation: IAR

November 3, 2008

Here is my comment on whether Indexed Annuities should be regulated. The answer is yes and no.

It all hinges on whether or not there is a market value adjustment connected with the contract.

An annuity with just a surrender charge schedule that has no other downside risk, ie. market value adjustment, interest rate or bond risk associated with it, fits the parameters of a traditional fixed annuity and regulation would fall to the appropriate states department of insurance.

If an indexed annuity does have a market value adjustment feature to it where in the case of surrender the absolute value of the annuity can not be known until the company sells the underlying bonds that back the contract, then it is a variable contract. As a security it should be regulated by the SEC.

Any regulation enacted by the SEC to regulate indexed products does not address the underlying issue of the lack of enforcement about insurance sales people giving out investment advice. Clearly a better mechanism for enforcement of investment advice needs to be put in place for the protection of the public.

Broker/Dealers, registered representatives and investment advisors are subject to audit of customer files both internally and externally. Insurance companies and insurance sales people are not held to the same standard. Insurance sales people are not trained for investment advice and insurance companies do not train beyond their own products.

It is clear that laws already exist about the dispensing of investment advice. Insurance companies and insurance state regulators do not have the required mechanism of regular audit for compliance with investment advice/advisory laws. There seems to be little to no coordination between state insurance departments, the SEC or state securities divisions for proper investigation and oversight for investment advisory compliance.

In closing, yes some indexed annuities should be and should have been clearly categorized as variable contracts, but not all. What needs to be addressed the most is the proper coordination of enforcement between the SEC, states department of insurance and states securities departments of investment advice/advisory laws.