March 6, 2005
Investors base investment decisions on trust, not on disclosures. Adding more disclosure requirements does not combat the day-to-day abuses in the securities industry. Regardless how much disclosure, individual reps will continue to make unsuitable recommendations. Investors will continue to rely on these individual representatives, and they will ignore disclosures. To most inexperienced investors, disclosures are the meaningless boilerplate that the government requires. They are nothing more.
But to the securities and insurance industry which profit from such unsuitable sales, disclosure acts as a defense when the investor learns s/he was fooled by the salesman.
The foregoing is specially true regarding variable annuities. Variable annuities are the most complex investment product ever sold to the public. The people who sell them often are ill-equipped to make suitability determinations and evaluate the wisdom of such investments, or even to explain them fully. Other salesman see only the extraordinarily high commissions associted with selling annuities.
The SEC should devote more of its time to regulating the salesman than on fiddling with disclosures that the public routinely does not read.