August 4, 2008
As a financial professional for over 25 years, I and thousands of others were stunned at the recent preliminary statement by the SEC that fixed indexed annuities might be classified as 'securities'. Before any final decision is made, please note that such should not and cannot be done by your own standards and definitions.
1) By definition, a security is an investment instrument other than an insurance policy or fixed annuity. A security is offered by investment companies, corporations or the government and has evidence of debt or equity. In the 1934 SEA it is 'Any note, stock, treasury stock, bond, debenture, profit sharing agreement or in any oil, gas, or other mineral royalty or lease, etc." There must be risk to the investors money.
2) Fixed indexed annuities ARE issued as an insurance policy, they DO have guarantees that the client cannot lose their principal, and even keep any gains that were locked in No 'security' can assure that, can it? A FIA
has no market risk to the principal and has guarantees from the insurance company.
3) The SEC has already made decisions 10 to 15 years ago that indexed annuities are NOT securities. Has something changed in the way the policy is designed to make a change in your view?
4) The problem seems to be only from a relatively few complaints from the public, less than 1%. Think of how many millions of people were upset in 200-2002 when their mutual funds went down, but the SEC didn't seem to want to regulate investment brokers about that. And what about those who are seeing volatility in the market this year, but no one is complaining about their broker. On the other hand, those with indexed annuities didn't lose a thing in 2000-2002, and haven't this year either and so are way ahead.
5) If there are some agents who don't understand or don't present indexed annuities for what they are, then the answer is not that they be required to get securities licenses which makes their understanding even worse, but it is to require education and disclosure. Much of this has recently been put into place with new forms needed for the client to read and sign. There are also new 8 hour annuity courses required every two years in most states and this should be required in all states for insurance agents. The course should be specifically on fixed indexed annuities as a part of their regular CE credits.
With this simple solution, clients, companies and agents will not be subject to some change in law that really doesn't apply in any way to fixed indexed annuities. Seniors and others appreciate the fact that they can have a way to avoid the risk that many of them currently have in their stocks, mutual funds, etc.
Although such transfer of money may affect funds that are managed by investment firms, do not allow their complaints and self interests to affect the fact that these annuities are NOT securities.