August 1, 2008
I believe the SEC's proposal to define an indexed annuity and certain other fixed annuities as a security is unfounded and, quite frankly, wrong. Even though the investor's return in an indexed annuity is related to the performance of a market index, it is NEVER invested directly in the market, therefore the investor in an indexed annuity bears absolutely no downside market risk. There is no risk of principal loss and in most indexed annuities the gains are captured by annual ratcheting and never at risk of future loss. Furthermore, the contracts guarantee a minimum rate of return by the end of the surrender period, so not only is there no risk of principal loss, but the investor will always know the minimum about of money he/she will have by the end of the contract period. Based upon these reasons alone, I see no way that an indexed annuity could be deemed a security and request that the SEC vote against this proposal to regulate the security. This regulation belongs to each State's insurance commissioner, who, I believe have done a good job regulating this, especially when compared to the NASD's and SEC's regulation of variable annuities and other securities. In this age of baby boomer retirement it is of utmost importance that retirees can have investments that will guarantee lifetime income and the ability to have competetive returns without risk of losing their money in the stock market. By the same token, an investor cannot depend on the uncertainty of fixed rate investments, like CDs, in which their earnings may decrease if interest rates fall in the future. Indexed annuities are a safe compromise between the two and with the guaranteed lifetime income riders now available retirees can now have lifetime income without annuitization.
In summary, I believe there is no basis for the SEC to regulate indexed annuities as they are NOT a security by definition of the Acts of 1933 or 1934. And I fear that SEC regulation would only hurt the investor in the long term as I believe the States can regulate these more effectively. I think the SEC needs to focus more on the large investors on Wall Street who, daily, rob the average investor of millions of dollars whether by driving up oil prices through speculation or destroying the value of a company's stock by short selling without restriction now that the "uptick rule" has been eliminated.