July 30, 2008
7/30/08
Proposal 151A will drastically affect a popular retirement vehicle which offers safety and guarantees for retirees. This rule would not only affect these very important products Fixed Indexed Annuities, but it would also have a potentially devastating effect on the economy. FIAs are offered by insurance companies to consumers who are looking for guarantees for their money. This insurance product has become an important product in todays tumultuous market place.
This proposal would have a devastating effect on the insurance agents ability to service the billions of dollars in these products from years past. This essentially would make consumers victims of other representatives who come in and pray on this existing business that is longer being serviced. These products have been available for over 10 years and have been closely monitored and regulated. As a matter of fact, the percentage of compliance related issues is substantially lower than those securities products.
The Securities and Exchange Commission has arbitrarily proposed this rule with a broad range of ramifications that will significantly affect us all. The consumer will have fewer options of products to chose. They will have fewer choices of representatives with which to purchase these products. The insurance industry will take a major blow as well. Insurance companies will potentially lay off thousands of employees while independent agents running small businesses may be forced to close their doors. Do we really need this kind of instability in the insurance industry with the current unstable economy? In the end, this change will not help the consumer. It will add no addition value. Quite the contrary, it will have negative impacts in many areas. What could the possible reasoning be behind this proposal? How could you come out with such a proposal that would have the effect on all of us without a strong rationale? It is deeply troubling that a federal agency could come out with such a far-reaching proposal affecting millions of consumers and agents without providing for adequate justification or rationale.
Some important points to consider are as follows: FIAs are well-designed products that give consumers guarantees, flexibility, and tax-deferral – to name a few of their advantages. The recent downturn in the stock market highlights the very strength and value of FIAs. While millions of American suffered financial losses, FIA holders have not incurred losses in retirement savings because of the current market turmoil. This is the primary reason that I make these products available to my clients. They are also already heavily regulated by state insurance departments. Through the National Association of Insurance Commissioners (NAIC), state regulators have been working earnestly 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.
Many securities lawyers find the SEC proposal to be completely unsupported by judicial precedents on what constitutes 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 where investors truly bear risk for market losses, including the possible loss of principal due to market declines. The SEC proposal has not been appropriately vetted for comment – and appears to be being rushed to adoption. With virtually no forewarning, you unveiled this proposal on June 25th and has allowed for comments only until September 10. This means a proposal with profound effects on the insurance industry could become law within just a couple months even though the general public has had minimal opportunity to evaluate, comment, and possibly offer alternative approaches to address any valid concerns. Fair play demands that a proposal of this importance should be allowed more time.
For over twenty two years I have built an insurance business with fixed indexed products having been an important part of my business success. I have played by the rules and have tried to provide my clients with quality products and outstanding service. I have never had as much as a complaint it those many years. I have employees many people in my small business and done my part to help the Washington economy. Now along comes the SEC with this proposal that endangers my business, my livelihood, the livelihood of the many people I employee and my clients interests. In my view, this is simply unfair and unwarranted, and no federal agency should be allowed to take such drastic action without the approval or acquiescence of our elected officials.
Sincerely yours,
Margo Thompson
Bellevue, WA