July 11, 2008
A horse is a horse of course, but a horse is not a zebra now is it? The two may look somewhat similar, but they are two entirely different animals.
Likewise, a fixed-guaranteed-indexed annuity is not a variable annuity and an index annuity is not a security. They don't work alike, but yet the SEC wants to treat them alike?
A security may decrease in value and there is no inherent guarantee. There is a guarantee in an indexed annuity – the guarantee the contract owner will not lose principal due to negatively performing markets. I dont understand how the two can be construed to be similar.
Our question is how then, can a guaranteed product be classified as a security?
In 25-years as a licensed insurance professional, I have been an agent / broker, a Registered Rep, an insurance and Registered Rep field manager, but most importantly, a trusted advisor to hundreds of clients – clients who are risk tolerant and clients who are risk averse.
Regulation of this product should not be with the SEC, but within the States through the NAIC. This is an insurance product. The money deposited with an insurance company does not become a segregated asset – the client has no direct risk of market loss. Rogue agents selling index annuities through misrepresentation need to be cinctured. Likewise should be the insurance companies designing products with disproportionately high commissions, thus high surrender charges for long periods. Companies and agents need to be reined in and held accountable, not the product.
The daily news is full of stories of twisting, churning and misrepresentation of equities and variable annuities, seemingly far more than with guaranteed insurance products. Lets not blame a product for the indiscretions of agents and insurers when the product in fact does exactly what it is supposed to do – insulate the contract owner from negative market performance while participating to some degree in market increases.