July 2, 2008
As President and CEO of a Broker/Dealer and Insurance Agency, I believe indexed annuities are a viable product for some customers if properly disclosed. In my opinion there has been tremendous abuse in the marketing of Index Annuities because of their complexities, high commissions and long surrender periods.
Abuse number one: False advertising such as market rates with no risk. In reality most index annuities are designed to return only 1 to 2 % above fixed rate annuities.
Abuse number two: Not properly disclosing Bonus Index Annuities. Customers believe the insurance company is giving them something for nothing. In reality bonus annuities only extend surrender periods and in many cases they are a wash. The client ends up with about the same money at the end of the bonus period.
Abuse number three: High commissions (10 – 25%) and long surrender periods (10 – 25 Years). Commission should be reduced to a range of 5-7% and surrender periods would fall in the same range of 5-7 years.
Abuse number four: Full and complete Disclosure of all aspects of an Index Annuity.
In my opinion if the above abuses were brought in line with Variable annuities they would be reduced tremendously.
In my opinion Indexed annuities are not securities due to the guarantees and should not be regulated but the SEC. Regulation should remain at the state level because it is an insurance product but individual states should step up and not allow Insurance companies to develop potentially abusive products such as many of the current Index Annuities on the market today.