July 21, 2008
I am against the SEC adopting the proposed Rule 151a that provides for federal securities regulation of fixed indexed annuities (FIAs) for the following reasons:
1. Unlike traditional investment products such as stocks, bonds and mutual funds, purchasers of FIAs cannot lose their money as a result of adverse market conditions. That is the precise reason why people purchase these products - NOT for speculation, or a hope for a "sky's the limit" return, but to attain a competitive rate of return without fear of losing their retirement savings when the market drops (as it is doing now.
I sell these products and some of my clients made a 16% gain from 2006-2007 when the market rose substantially. Those folks locked in that gain forever, but lost nothing this past year when the market dropped 20%. Seniors, particularly, should not be in a position where they lose ANY money as they don't have the time - the "long run" - to make it up.
2. Currently, the various state licensing authorities are well equipped to regulate the sale of these products. After several lawsuits, even the insurance companies have taken dramatic steps to insure that these products are appropriate for sale to those over 65.
3. If a producer has to be registered with a broker-dealer to sell these "safe" products, that broker-dealer will also require the producer to sell a minimum of traditional security products (mutual funds, variable annuities, etc.). As I deal exclusively with seniors, I don't believe it appropriate to have to sell them stock funds, etc. simply to achieve a required quota.
I actually think it would be more beneficial to propose a rule severely restricting the sale of stocks and mutual funds to people over 65 as it is truly inappropriate for them to expose their irreplaceable nest egg to the severe market downturns that inevitably occur.