August 6, 2008
I operate a brokerage type operation focusing on fixed products. We are small in relation to some organizations but do sell a fair amount of fixed indexed annuities, approximately 20 million in premium per year. We have been doing this since 2005.
With the hundreds of clients who have purchased these products through my agency which has hundreds of agents. We have not had the first consumer complaint that an agent represented the product inproperly. My agents know that I do not put up with any misconduct.
The key difference between these products and that of securities (mutual funds, variable annuities, Stocks, Bonds etc) is that other than the surrender charge there is no risk to principal. The products offer a minimum guaranteed interest rate which varies by company and product but at no time can the amount invested for the client earning interest be less than the amount invested. Securities such as mutual funds and variable annuities have no downside guarantee. There is unlimited risk to principal with true securities products.
I have seen recently some variable annuity products that have added an income guarantee option so that if the investment performance is poor the client can choose to annuitize the funds over a 20 year period and that includes a low guarantee if the client chooses that option. Registered representatives who fall under the SEC and NASD guideance have with some of my clients represented those products as investing in the market with a minimum annual guarantee. An act that if committed by any of my agents they would be terminated and reported to the state insurance commissioner.
Very recently I had a client who chose a variable annuity with this income protection over the indexed product I was presenting. The market took a big downturn right after he invested and now in order to take advantage of the protection afforded by the income guarantee he is locked into the underperforming product for a period of no less than 20 years. Not long ago he called me and said I was right he should have purchased my product. This was everything the gentleman had for his retirement. Now it's take an income or you've lost your hard earned money.
Misconduct on behalf of agents in the past has been grossly exagheratted by shows such as dateline. The main risk to consumers is in the event that they have to surrender prior to the end of the surrender period. Most companies and organizations like mine have instituted disclosures that must be signed by the clients indicating that they understand fully the mechanics of the product they purchased including the surrender charges and liquidity features.
I don't see how making these products securities will help in the manner they are presented to the public but I do see how making them securities will not reach a significant sector of the population who could benefit from the product.