July 11, 2008
Indexed annuities have been successful because the nature of the product meets the needs of the saving public
Indexed annuities are risk - averse savings vehicles - they are NOT high-risk investment products such as those offered by Broker/Dealers where a consumer can lose his or her principal In fact, with the state guarantees for annuities, there is almost no chance of loss even in the event of the issuers bankruptcy.
Indexed annuities offer consumers important protections, namely: (1) the guarantee of premiums paid and (2) guarantee of interest credited. No security offers these two benefits.
Indexed annuities provide underlying interest guarantees required by state law
There is little difference in the risk to a policyholder for a traditional fixed annuity versus an indexed annuity. Under both forms of annuities, the policyholder is at risk to the insurer's annual interest rate declaration, whether it is an expressed percentage amount or a formula relating to changes in an index.
The sales practices and suitability safeguards needed for index annuities are the same safeguards needed for all life and annuity products.
The proper supervision needed for traditional fixed annuities, indexed annuities, and life insurance can be, and is being, performed according to state insurance department rules. In fact, it is becoming more and more difficult to pass all the suitability requirements that are being imposed by the insurance companies themselves, to ensure ethical sales off these products.
The results of the SECs proposed rule will not be to benefit savers but to:
1. Reduce the number of agents who can offer a product that is beneficial to many savers
2. Burden indexed annuities with unneeded additional expenses (for filing, regulation, and supervision), the cost which will be borne by savers
3. Damage financially many individuals, small businesses, and smaller insurance companies and
4 Give Broker/Dealers the ability to suppress a viable, valuable, and successful form of retirement savings which has and would continue to provide strong competition to those retirement savings offerings traditionally made by Broker/Dealers.
The Broker/Dealers have suffered greatly from the conversions of many variable, high risk annuities and other risky investments upon which they live. As is often outlined in the press, variable annuities are in fact heavily laden to the clients detriment with management , 12b1 and other fees whose only purpose is enrichment of the issuers. In 90% of the variable annuities offered, performance is worse over a long period than a conventional fixed annuity, which must be well known to you.
Given the performance of indexed annuities and the public's acceptance of these products, it is no wonder that B/Ds are frightened of the future of these safe, simple products.
The SEC should spend its time controlling the securities it presently has, including the functions of the BDs in the repackaging of loans, much to the detriment of the nation's economy, rather than trying to supervise a field that is more than adequately policed now.