November 13, 2008
I am Arlene R. Foreman, a Florida state-registered investment advisor, member of the Financial Planning Association, and support the proposed rule.
I have been licensed as an insurance/annuities agent since 1971 and comprehensive financial planner since 1993; since then working as an hourly-fee advisor.
I have seen many products, agents, and companies come and go.
I have rarely seen a client who completely understood the product s/he was purchasing; and the “transparencies” that supposedly broke new ground when universal life was introduced have been totally obfuscated with equity indexed annuities.
While there are many sellers of these products who are gloating right now because the guarantees in the products, if properly purchased and properly applied, have protected the clients from the downside spiral of our current securities market, there are untold stories of people who did not benefit from the upside growth of the market – or at least not to the extent that they understood they would benefit – during the many up markets since their purchases.
My concern is not the product, but as with all variable products (insurance, annuity, or otherwise) the client’s understanding must be dominant in the purchase process. Disclosures are many with EIAs in some states, but they are so complex and numerous that few clients who have come to me owning EIAs have been able to articulate what they own – or even why.
The majority of my clients are at or into retirement, and their need to know what they have and what it will or will not do for them is paramount. The proposed rule, in my opinion, will aid in that process far more than the current regulation. Most importantly, it will put these annuity products – which clearly are investments – on the same footing and under the same scrutiny as other investment products. That clearly is in the public’s best interests.
While we would like to say that suitability is objectively determined, there are always subjective issues at play. However, insurance department scrutiny of suitability of sales is far less active and specific than it is in the securities arena. When a frail 94 year old woman, with cancer, is sold an annuity “so that I can be paid because I have been working with you for two years and you have purchased nothing from” by an agent who knows that unless the client files a complaint nothing will be amiss – whereas on the securities side we are always subject to audit and can get “caught” at any time – it is time to change the rules. Perhaps a more appropriate level of oversight and requirements, as envisioned with the proposed rule, would have prevented this more-than-likely unsuitable purchase.
The proposed rule gives credence to the philosophy of making the playing field level, and I strongly support this evolution.
Arlene R. Foreman, CLU, ChFC, CFP(r), CTFA(TM)