November 13, 2008
Regarding the Equity-Indexed Annuity Rule.
As much as I prefer that the SEC exercise restraint in imposing burdensome regulations in too many areas, I have to agree with those who have seen major abuses in the promotion of equity indexed annuities. I have not seen such lack of diligence in oversight since the excessively high fixed annuities of the 80’s. I am licensed in both securities and insurance in several states.
There are reputable insurance agents marketing these products but the sheer number of horror stories primarily in the elderly group provides indisputable evidence that many agents are intentionally overselling the theoretical benefits and under-disclosing the constraints, long surrender charges, and other pertinent liquidity information most of the time. The problem is primarily with supervision. There is none. The insurance contracts (and they are certainly contracts) can be very complicated and any agent can say virtually anything with very little downside risk. Typically people simply think they are getting “stock market type returns with no potential for loss of principle”. Who wouldn’t want that? Commissions are generally huge, often in the 10% range.
I think there should be some standardization in these products but that they should be available in a free and fully disclosing marketplace. The gaping missing piece is the combination of absolutely no oversight on sales and no protection for consumers under the present situation.
Mark W. Novkov, CFP®
Certified Financial Planner™