September 2, 2008
I have been an insurance agent and registered representative for 22 years and believe the proposed regulation is an unnecessary and irresponsible expansion of SEC and FINRA regulation.
First of all, a fixed annuity (of which indexed is a part) has always been regulated by the states. Secondly, the basic definition of an annuity provides that the product has a baseline guarantee (which the indexed annuity has and variable products do not.) Thirdly, all insurance products are based on some investment tool. For example, a manufacturer of a regular fixed annuity purchases bonds to pay for the return the insurance company has guaranteed. Is the plan to regulate all annuities and this is just the first step?
There is no doubt that some annuities were sold incorrectly to the wrong people for the wrong reasons. If the commission believes that regulation will stop inappropriate sales, I recommend that you review the inappropriate sales conducted in the variable annuity arena or in the stock and bond sales area. There have been many more complaints regarding variable products than those for indexed products. Regulation in and of itself will not stop theives and "short-cutters" from misrepresenting their products.
Individuals who try to do the right thing and hamstrung by reams of paperwork which only protect the agent/representative/company and do not much to protect the consumer. Transactions which used to take the application and an investor account form now require 6 other forms. A recent customer of mine said "I am trying to give you money, not purchase a house." Even though I encouraged him to read every form, he said, "If I do we will be here until midnight." If you want to do something positive, reduce and simplify the paperwork.
Another example of overkill is the prospectus for most variable products. Has anyone ever determined what percentage of customers actually read the document? I would assume the percentage is less than 1%, if that high. Yet each year the prospectus' get larger and more cumbersome. Why can't the document include only the basics such as the cost of purchasing, what the investments are in and the phrase "YOU COULD LOSE ALL YOUR MONEY." That is all that needs to be said.
If you make the indexed annuity another registered product, you will not improve on the product, you will reduce the performance (to those that purchase the product who you say you are trying to protect) by the added costs, related to distribution and compliance, you will make the product more complex rather than less and the product will not fill the unique gap that it currently fills which is between bonds and stocks.
A properly sold index annuity will NEVER compete with a stock or stock fund. Best performance will never exceed 8% over the long haul with more reasonable assumptions of 3-7%. I sold one in October 1998 and for the 9 year period ending September 2007, while the return of the SP was 5.2 percent and the annuity returned 5.9%. Somehow the client was very happy. I do not see anything wrong with that type of return especially in the years 2000-2003 when the annuity earned "0%" and the market was off by double digits.
Please reconsider this regulation. It does nothing to protect the client and brings along everything that is wrong with the investment market today.