July 30, 2008
There are two key issues that frame the debate surrounding Index Annuities. First, the issue of who gets paid and in what proportion. Major wirehouse and other independent B/D's are primarily interested in getting "their piece" of the commission and the issue of "suitability" is secondary to them. Second, the issue of "suitability" has become a nice sounding term that can be used to drive this business segment/product line into the hands of middlemen such as B/D's, SEC and FINRA to insure that they also share, to some extent, in the commissions attached to these products. Interesting, "suitability" is never defined, but apparently sombody, somewhere knows it when they see it. The issue of suitability is important. However, this issue seems to be ignored when certain state security commissioners voice their profound dislike for these products. The purpose of an Index Annuity to protect the savings put into them while offering the potential of a better interest rate return using a stock market index. This point is quickly overlooked. Instead, they quickly move to the talking point that, at times, Index Annuities have been sold to older people/seniors by less than honest insurance salespeople, and the seniors do not understand what they own. It has been my experience over the past 15 years that most "investors" who we meet with us for the first time really do not understand what they own or why their broker put the product into their portfolio. Index annuities are a savings vehicle...an alternative to other principal protected savings vehicles such as CD's and MM accounts. Yes, like all products that serve as a holding tank for people's money, some are more difficult to understand, some are poorly explained by the sales person, and some can rationally be considered inappropiate, unsuitable or just plain bad products for anyone There is no rational reason for the securities departments to intrude into the insurance sector and unilaterly decide what they shall regulate based upon the current history of "bad actors" or "bad products" that seem to make news.