August 25, 2008
The FIA is a fixed product and people purchase the product for many of the same reasons people purchase savings instruments such as CDs or Fixed Annuities. ALL of my clients are looking for guaranteed safety of principal, and mitigation of risk. You cannot get these in securities...only fixed products.
The SEC suggests that FIA purchasers bare the majority of investment risk for fluctuating market performance. This is a lie. Unlike true security products, the purchaser is NOT directly impacted by market fluctuations. Negative investment risk fluctuation to the purchaser is eliminated entirely.
The SEC suggests that FIA purchasers assume many of the risks and rewards that investors assume. Another lie. FIA purchasers assume the benefits and rewards of a Fixed Annuity. Market fluctuations do NOT affect principal value or past interest credits.
The SEC suggests that federally mandated disclosure and sales practices are needed. FACT: Suitability regulations in most states and the sale practices required by insurance companies already meet or exceed the federal requirements. Complaint resolution through a department of insurance is much more effective that provided in securities law. Rather than hiring an attorney and going to court, a consumer working with their local department of insurance receives direct representation at no cost.
The SEC suggests that abusive sales practices are fueled by outsized commissions. True there have been abuses, but the industry itself has been very proactive in cutting them down. We are highly regulated by both the states and the companies with whom we do business. In fact, he complaint rate on FIAs is one complaint for every $109 million in sales according to the Advantage Compendium. Over the life of any annuity contract, the compensation is actually less than that of an investment advisor.
The SEC mentions case law regarding the evaluation of whether an FIA is a security but fails to mention the judges' findings. According to the judge, in Malone v. Addison Ins. Marketing, an FIA is NOT A SECURITY.
The SEC document states there will be increased competition by adopting this rule. This rule will reduce competition and harm consumers. If adopted, only consumers who open brokerage accounts may access an FIA.
The SEC is being inappropriately influenced by securities dealers through their trade association (FINRA). These dealers are seeking to gain control of additional sales volume to increase their revenue. This is clearly not about protection consumers as those protections are already in place with each state department of insurance.
This is, in fact, a bald-faced power grab by the SEC in an effort to protect the securities industry from all of the money flowing into a better, safer financial instrument. Do not be fooled.