July 18, 2008
The debate about whether or not fixed equity indexed annuities are securities is nothing short of silliness in my estimation. The argument should hinge entirely upon risk. A security by its nature involves a speculative element about whether or not an investor's principal is ultimately "at risk" in the marketplace.
Since the principal and, in most cases, a minimum level of annual interest are contractually guaranteed in an FEIA by the issuing company, the investor is completely protected from market risk. All that is uncertain is the actual amount of index-determined interest, if any, that may be credited to the account (and added to the guaranteed principal) at the end of each year.
Furthermore, a purchaser of an indexed annuity has the peace of mind of knowing in advance the lowest cash-out selling price his account would fetch in any market condition in any year based upon minimum contractual guarantees. This cash-out price is determined by the surrender charge schedule applied to the current contract value and not by selling into an open and unpredictable auction market. An owner of an investment security has no such peace of mind. This element by itself should end the debate once and for all.
From what I have heard, the Supreme Court ruled these FEIA contracts to be non-security annuities in a decision made within the past couple of years. To continue the debate further is to disregard the well considered and reasoned opinion of the highest court in the land as if to say the justices don't know what they're talking about and aren't capable of intelligent thought with regard to annuities. This is a direct insult to the Supreme Court.
Continuing this debate with hopes that the SEC will grant control of these contracts to FINRA and the securities industry is nothing short of a deceitful attempt to grab control and power from the insurance industry and the state insurance commissioners. It is my hope that the SEC sees the prima facie absurdity of this deceit and overstepping and stops it once and for all, never to be revisited again.
Leave the risk to Wall Street investors and leave the guaranteed safe money to the insurance industry where it belongs. No one is losing or risking money in FEIA's and this has nothing to do with protecting investors and everything to do with the loss of control (and fees) of the billions of dollars hemorrhaging from Wall Street mutual funds to Main Street insurance companies.
Stop this debate and rule these contracts to be non-securities and therefore forever beyond the jurisdiction of FINRA and Wall Street. Wall Street is causing enough pain and suffering to the country and the world now as it is. We're witnessing what they did to the mortgage markets and the financial system at large and now you want to hand them fixed annuities, too? Why hand them even more? Put them back in their box where they belong. Enough already. Stop the craziness. Start protecting investors FROM Wall Street. That used to be the job of the SEC but, sadly, times seem to be changing.