November 13, 2008
I COMPLETELY SUPPORT THE RULE THAT WOULD ALLOW SEC OVERSIGHT OF EIAs. I am a financial planner who has been in business for 20 years and hold Series 7, 24, 63, as well as life/dis/LTC insurance and RIA/agent. I own a financial planning firm and fully utilize a disciplined, diversified approach to managing clients’ wealth and their expectations.
Having seen more EIA sold incorrectly or maliciously than correctly, I applaud you for wanting to clean up this rogue area. I meet close to a dozen people a year that have EIA (none have had a surrender charge for less than 10 years) who should not own them or were pressured into buying something they really don’t understand. Somehow, these part-time salespeople are able to convince someone to tie up their money for long periods of time into something that might not be in their best interest. The idea of a guarantee is appealing, but at what price? I usually ask a client are they willing to take this money and invest into something that they can’t get out for 10 years without a substantial penalty. Furthermore, how long does it take the typical client before they change their portfolio holdings. Usually, 2-3 years is what I’ve seen. If the index annuity is only going to pay 4% or -5% or 6% or 7% then why not simply purchase a AAA rated bond and you can have the guarantee at maturity and it is completely liquid.
The two biggest agent problems I encounter are what I call the Swiss Army Knife approach for retirees. They sell it to everyone and as much as possible. The other scenario I see are these hit-and-run guys who approach the client with the idea of only wanting to reposition a portion and put it in a “safe money” area (which is the term that these guys use). They sell the EIA, get their massive commission, and are gone. These sales people never follow a disciplined process nor are they typically licensed in other arenas so really do not have the tools. There is seldom any proper fact finding and analysis. You will not see any investment policy statements from this selling group nor will you find a systematic approach to portfolio/client reviews and updates to make sure that clients’ objectives and goals are accurately reflected in their holdings.
I’m a believer in smaller government is better and less regulations is better. But in this case, having the oversight and, more importantly, the enforcement of this oversight, will cut down on these product pushers. In this era where we are bombarded by bank failures and economic collapse, we need serious advisors doing serious work with their clients.
-Andrew Markham
Andrew K. Markham, RFC
President, Markham Financial Services, Inc.
Registered Representative offering securities through First Allied Securities, Inc. A Registered Broker/Dealer Member FINRA