October 21, 2008
Placing an industry with competing interests to securities under the purview of securities regulators strikes me as a serious blow to financial industry checks and balances. Clients at my firm have not lost any money in this past year, and as such their standard of living has not decreased. In other words during this precarious moment of financial turmoil our retired clients have not become more reliant on Social Security and Medicare to support their lifestyles. I am concerned about the financial well being of retirees should this legislation pass, because many agents will have their voices and opinions silenced. Securities professionals tend to have an unwavering commitment to the stock market, and for good reason given historical results in the equities market. However, in retirement planning facing a bear market early in retirement, facing increased inflation (CPI-E demonstrates 3.3%, not the standard 3% used by most planners), and living too long are all concerns that retirees face, and insurance can assist with these concerns. Now, on to competing interests. We have an agent in the office who has his securities licenses at the moment, and prior to moving to sales I worked in administration for him. When we became registered with a broker/dealer everything instantly changed. It seemed as though the focus of the relationship was eliminating Fixed Index Annuity (FIA) business at our firm, and replacing it with mutual fund and variable annuity sales. Suddenly we had new forms to fill out that required clients initial 13 places explaining why not to buy a FIA. When that wasn't an issue for us we began to regularly hear from our broker/dealer that it was paramount that we use less FIAs. Why? Because the regulators were cracking down on securities licensed individual who mainly sold FIAs. Why would regulators do that? Because clearly if you are mostly selling FIAs you are a one product fits all operation... never mind specialization. We were genuinely led to believe that we may face increased scrutiny from regulators for writing more FIA business than securities business. That is a scare tactic to reduce insurance sales, and if insurance is regulated by the same industry that already attempts to intimidate those already registered you can bet it will only get worse once they know they control 100% of the agents writing FIA business. What this all comes down to is basically that increased regulation will not only hurt an industry, it will not benefit consumers in any way. Please please please think about the WHY here. Why would the securities industry want to control agents in the insurance industry? We have not been prone to the many scandals and market fluctuations that securities have had to deal with. Clearly securities regulators already have more than they can handle. I can put concrete numbers on the WHY. Most of the accounts I work with have commissions anywhere from 2.5% to 8%. The 8% accounts are ten year products that really only provide benefits to those who stick with them for life. What does that mean? Say someone who is retired buys one of those "high" commission accounts from me for $100,000. I get $8,000 in commissions, and that client gets a fee free (not all accounts are fee free) for life. That $8,000 does not come out of that clients account. Now, let's say that client is 60 years old, and lives to 83. Over his lifetime he withdraws $193,896 from the account for an annualized return of 2.92% (during spend-down phase). That makes the total commission for the total benefit equal to about 4.13%. Now, let's say that same client invests $100,000, and receives an annual return of 8% on his investments (no sequencing scenarios), but takes the same withdrawals as the annuity account. Over his lifetime he withdraws $193,896, and his account is still worth $137,181 at death for an annualized return of 5.34% (again during spend down). Now, if he paid fees equal to 1% of his account value during that same period of time that equates to $29,256 over his lifetime. Which makes the total commission for the total benefit equal to about 8.83% Baby boomers are retiring, and they see the benefit of annuities They are moving their money into insurance accounts, and the securities industry is losing that commission for good There are valid reasons for purchasing a FIA contract, and the securities industry is scrambling to prevent the sale of these products. A good FIA sale involves putting a clients money into a contract for life. Most FIA contracts are designed to benefit those who stick with the account for life, and those are the accounts at risk with this legislation. Again I ask that you please consider the WHY. I am a good and honest agent, and I have seen what securities regulation is like, and I know that we will be forced to do less fixed business if this regulation is passed. Consumers will therefore be forced to leave their assets exposed to the equity markets, and only wealthy individuals will benefit. Federal regulation will not help clients, and may even hurt them. Contacting the state insurance commissioner is far less intimidating than contacting a federal agency. I would love to see increased state regulation that involved some REAL licensing requirements... like determining suitability. Weed out my less honest competitors... please Just don't hurt honest agents who have happy well informed clients that haven't lost a cent this past year. Our industry is not rife with scandal, why would anyone consider placing us under the control of a regulator for a scandal ridden industry?