October 14, 2008
Comment on File No. S7-14-08
Proposal to Classify Fixed Indexed Annuities as a Security
Dear Commissioner Cox:
I have previously written to you and want to commend your decision to extend the comment period on this matter.
I am a licensed insurance agent and a consumer. As an agent, I have received a number of phone calls in the last two weeks from very nervous people wondering what was going to happen to them financially. Most of these people had other money in the stock market; they were watching their life savings disappear before their eyes. I was able to reassure them that their FIXED INDEXED ANNUITY had not declined in value; they were able to contact their issuing company and verify same.
I again explained to each person that they owned a fixed indexed account. In their other variable account, they - the consumer - shouldered all the risk of loss. In the fixed indexed account, that risk was transferred back to the insurance company. Even though their Fixed Indexed Annuity account might be measuring a market index, they did not own shares of any stock or index - as clearly stated in the Buyer's Guide to Fixed Deferred Annuities from the National Association of Insurance Commissioners. Because there was no stock or share ownership, they were not suffering any loss. It was certainly possible not to make a gain if the stock market continued to drop. But the account value of their Fixed Indexed Annuity was only linked to an external market index; they didn't own the index. Therefore, their account value would not go down if that index went down in an annual declining market. The relief that their funds were safe was palpable.
Commissioner Cox, this distinct difference clearly and obviously makes a Fixed Indexed Annuity an insurance product, not a security.
As a consumer, I personally own these products. It was horrifying these past 2 weeks to watch the stress of people who have not protected at least some portion of their life savings. They could only hope that the market recovered at some point. Their brokers and financial planners had never made them aware of the safety of a Fixed Indexed Annuity. My personal broker did not have a clue to the existence of a Fixed Indexed Annuity when I first began using these products. His brokerage firm still doesn't offer the product.
There are already substantial regulatory insurance guidelines in place from the various state insurance departments, along with new and constantly updated Suitability requirements, to protect consumers. I fully support these efforts to make sure that Fixed Indexed Annuity products are properly regulated and fairly represented to consumers. This is happening on an ongoing basis within current state oversight.
Commissioner Cox, I strongly urge you to stop this proposal. Let the risk of the stock market and securities speculation continue to reside with brokers under SEC oversight. Let the safety of Fixed Indexed Annuity insurance products continue to reside with licensed insurance agents under state regulation. This gives consumers the opportunity to hear two distinct financial views and make a clear choice in their financial decisions.
Thank you.