November 13, 2008
Is there a place for Index Annuities in the market place? Absolutely. Should the public expect and get uniform regulations on investment products? Absolutely. Does the SEC have a role to play in protecting the public? Absolutely. Here is your own mission statement. I couldn’t have said it better myself. The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.
As more and more first-time investors turn to the markets to help secure their futures, pay for homes, and send children to college, our investor protection mission is more compelling than ever.
As our nation's securities exchanges mature into global for-profit competitors, there is even greater need for sound market regulation.
The adoption of regulations for investors, young/old is an important mandate for the SEC. Many investors and agents selling index annuities do not truly understand how these annuities work. The public does not understand that when they select the DOW Index or the S&P Index (as an example) within the Index Annuity that they are not actually investing their money in these indexes.
The SEC has indicated to broker/dealers that if their brokers sell index annuities, the broker dealer should supervise these activities. In order to avoid this supervision and because the commissions are frequently 20%+ some agents have given up their SEC licenses. These commission are one of the reasons for the very long surrender periods. Needless to say, commissions are driving this market. There are some index annuities with 5/7 year surrender periods but the public is rarely presented with these choices. These shorter term index annuities have much smaller commissions.
In order to simplify the regulations and maintain uniform standards across the country it appears to be not only reasonable but justified to have the SEC regulate these investments and require, at a minimum, the same licenses as a variable annuity. In general, the rule as it is proposed is a reasonable and balanced approach to enhancing state enforcement efforts.
-- Nancy Hite CFP®, CLU, ChFC, RFC
The Strategic Wealth Advisor