November 17, 2008
I am opposed to proposed rule 151A.
The recent downturn in the stock market highlights the value of FIAs. While millions of Americans suffered financial losses as a result of a twenty percent plunge 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.
Fixed Indexed Annuities are currently subject to comprehensive state insurance regulation. 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.There is no assurance that FINRA could do a better job.
I am opposed to FINRA lobbying for expanded jurisdiction. Further expansion by FINRA will not eliminate the bad actors in this industry, as evidenced by the continued existence of unethical characters working under FINRA licensing.
The proposal is not supported by any empirical evidence that supports the Commissions claim that widespread abuses in selling the product exist. Criticisms of FIAs have been exaggerated and market abuses have been largely corrected. The SEC—along with other critics—have focused on abuses in the marketing of these products. Needless to say, there are abuses in the marketing of all financial products, including many that are already regulated by the SEC. The Fixed Indexed Anuities are not securities, which is a great part of their appeal.
The SECs draft regulation (rule 151A) adds an unnecessary layer of securities regulation to this insurance product. Rule 151A would turn most FIA products—as well as some non-indexed fixed annuities—into securities. This will have far-reaching consequences by disrupting the manner in which these products are sold today. Thus, causing confusion over the differences between insurance versus securities and providing little additional consumer protection at tremendous cost to companies, agents and ultimately clients.
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 annuity exempt 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. Many observers think the SECs proposed regulation—if adopted—is a slippery slope towards reclassifying many other annuity products as securities. This seems at odds with the Congressional intent.