July 9, 2008
I am torn on this issue. On the one hand, any oversight and regulation by multiple agencies add confusion and cost to both the consumer and the provider. We seem to over regulated as an industry in comparison to others as it is. On the other hand, I can offer my clients a CD whose return is linked to an index. This product looks, smells, acts, and tastes just like an index annuity. They come with FDIC insurance so there is very little risk of loss of principal, just like an annuity. The main differences between these 2 products, as I can tell, are (CD vs. Annuity) 1) taxable vs. tax-deferred, 2) no annuitization options, 3) short term vs. long term investments (cd maturity vs. annuity surrender period), 4) 0.5% to 2.0% commission vs. 4% to 13% commission, and lastly 5) I need a securities license to offer the CD to my client. Along with CDs I also have the availability of notes linked to indexes as well, which also requires a securities license. If I need a securities license to offer the products that work the same as an index annuity, why should the index annuity be exempt? If it looks like a duck..........
I believe additional regulation would eliminate the excesses in this market and drive out the poorly constructed (and excessively commissioned) products as well as reigning in the abusive sales practices that NAIFA and the NAIC dont seem to be doing much about.