August 10, 2008
The SEC does not have the budget and experience to attempt to oversee a product area best left to the life insurance industry. That said, the life insurance industry has done a poor job of regulating indexed annuities.
The best solution may already exist for most, that is, most broker-dealers already require all reps to place this type business through them because of the liability issues. For insurance agents without a FINRA Series 6/63 license, require it.
The product manufacturers feast on seniors and agents in a world of no transparency. There is little disclosure as to the profit margin and expenses to the agents and the public.
When I ask an agent what the expenses are, often they say there are none except the spread they make on the return over the cap, which is baloney. Most agents only admit that the surrender charges, often lasting 20+ years, are there to finance the 15%+ commissions paid to them.
Index annuities, and index UL, for that matter, are structured products using an options strategy to enhance returns. Why anyone thinks it is the same as fixed account annuities or life insurance is remarkable.
A simple 6-8 page prospectus type disclosure that in consumer language spells out expenses and fees to companies, agents, etc... would give greater credibility to the use of these products for consumers.