August 25, 2008
I work primarily with seniors in preparing their taxes and in assisting with investments. Many seniors in my office area (Sun City West AZ) have been lured to seminars hawking indexed annuities. At first the seniors are fine with the annuity. Then after they have needed to take money out of the annuity, they are shocked to discover that there are interest charges on the withdrawal, even if it is penalty-free or that there are penalties or that they are limited in the amount that they can withdraw or that there is a Market Value Adjustment.
When market performance was positive, the seniors I met with generally have been happy with their annual statements. However, this year I am seeing people complaining to me about their annuities that they purchased from other agents (I do not sell them because most pay more to the agent than they ever pay to the client with minimal guarantees, and I view that as an unbalanced investment product.), where the account values have dropped. Usually, their insurance agent did not understand the actuarial formulae behind the annuity and could not explain how the policies functioned. When I have seen these seniors complain to the department of insurance, the department has generally rejected the complaint typically because it views the approval of the product as enough evidence to make the product suitable for any purchaser, or even purchasers of a certain age group and often may not take individual circumstances into consideration.
The main issue is that the agents do not understand the annuity and then disseminate misleading information. The secondary issue is that the agents are often motivated by the size of the commission that they can earn.
By contrast, these two issues are both solved in a fair manner by the rules for agents who sell variable annuities. The main issue is solved because not only are registered representatives required to maintain continuing education, but they are required to undergo supervision that makes more than just the agent liable for misleading statements and seminars. The second issue is solved because in the sale of variable annuities the commissions are limited to a fair amount.
Furthermore, the departments of insurance are not equal in how they view the products or deal with complaints. I don't believe that they are equipped to handle the issues of suitability, etc. that are already in place under SEC rules.
I have received a large number of letters, emails and FAXes from insurance companies and annuity wholesalers requesting me to formally protest this Rule. I cannot in good faith protest something that will help seniors across the U.S. So I am adding my "go for it" comment approving the proposed rule 151a. However, I still work with these wholesalers and insurance companies and wish to avoid having them read my name on this comments site.