August 17, 2008
I have been selling annuities including Fixed Indexed Annuities as an independent, licensed Illinois life insurance agent for 27 years. I love my vocation and have a passion for helping baby boomers accumulate tax deferred money for retirement with annuities. Annuities are great vehicles for annuitizing retirement income and have certainly withstood the test of time since ancient days of the Roman Empire. Even then the Roman government never regulated with centralized government but localized regions of the annuity. This proposed change by the U.S.SEC/FINRA on S7-14-08/33-8933 would only increase cost and not protect investors. This can cause a billion dollars worth of damage to the industry without improving consumer protection.
For example, here is a fresh 2008 personal testimony of a recent transaction that I witnessed. My client was taken in by a collusion of two security agents without the client knowing what had happen until over a year. The agents were employees of two large well known financial firms. I can't mention specifics because my client chose to forgive and forget the matter.
I can tell you this.
One client trusted firm begins with the letters MS.
The other firm is a large life insurer selling universal variable life beginning with the letter H.
Again, I feel for my client. He didn't even know of this H agent until he was caught a year later.
A doctor client called me with a concern on his statements.
He had a brokerage account with.........for a number of years. He trusted the agent for over 20 years.
$50,000 was missing from his brokerage account.
Where did it go? Did he lose it when the mutual funds fell?
This agent of the well known brokerage account transferred $50,000 out of his account to an agent who is not with MS but is security licensed in the state where my client lives. The brokerage agent told my client that he could not justify spending a new licensing fee for Illinois on just one client. That's why he brought in another agent who did.
The $50,000 was used to purchase a universal variable life insurance policy with a well known insurance company.
My doctor client never authorized the purchase nor knew of the transaction or the new life insurance agent who had a securities license. He never received a prospectus nor signed any disclosures or ever received an insurance policy. When the brokerage agent and life insurance agent were caught with this obvious fraudent act, they told my doctor client that they thought he knew. The brokerage agent was not securities licensed in Illinois so he gave the authority to an outside life insurance agent who is.
My doctor client was upset and transferred all his money out of the brokerage fund and cancelled the life insurance policy. and my client decided not to report the fradulent act out of courtesy for the past friendship he experienced with the brokerage agent.
The point is that every profession-both security regulated and non security regulated have unscrupulous agents that are deceptive in sales practices. Not all are caught and reported. In this case both agents were security licensed, one in Missouri and other in Illinois. Both agents are career agents with giant financial companies. I have not revealed their names because my client told me to not to.
In regards to this proposal, if you go looking for problems in any industry, you're going to find them. The insurance industry has been cleaning up its practices by making it harder for unscruplous agents to deceive and sell annuties to consumers, especially vulnerable senior citizens. But please remember that the security licensed industry is not immune to dishonest agents.
In conclusion,fixed indexed annuities should remain as a non-security regulated product defined as insurance, and not redefined as a security. Do not put an uncalled burden on the consumer, but do a better job at getting after "bad apple" agents( as mentioned) and financial firms(as mentioned) that do harm to consumers in the security industry. Not even the Roman dictators of ancient Roman messed around with central government product regulation of annuities for Roman citizens for centuries.
They used wisdom to allow local government regions to oversee any wrong doing by annuity sellers. I pray that the SEC use the comment period to really think about how proposed change in S7-14-08 in 33-8933 will overturn long standing precedent and do little but burden consumers whom are trying to buy annuities without more big government regulation and industry expense. Respectfully submitted.