November 13, 2008
I’m writing you to urge the SEC to support the “Equity-Index Annuity Rule”. I am a member of FPA and a Certified Financial Planner. I also hold insurance license in several states. The use of this product abuses the general public. It’s sold by uneducated salesman to people who do not have a understand of the markets and usually do not know what a index means.
A client of ours brought their mother in because she had been sold one of these products, she was age 81. The product was sold on the bases of no lost in the market and it placed a ceiling on the maximum the client could make based on the S&P 500 index of 9%. However, after researching the product the index used was the index for the S&P 500 without dividends. I did a study on the S&P 500 without dividends from 1969 to present, and found the account would have only earned around 5.7% based on the criteria in the indexed annuity. The Annuity also called for a 10% surrender charge for 10 years. Another case was that of a 79 year old widow. When her Husband died she was to inherit his annuity which was a fixed annuity. It should have been transfer as a spousal annuity directly to the widow. However, the bank employee who had the insurance license, cashed out the annuity owned by her husband, causing 79,000 taxable ordinary income, and then sold the widow a new index annuity with a new surrender charge. Again one of widows children who was our client caught the transaction and brought it to us. Because of the State of Alabama’s free look on Annuity we were able to save the client the new surrender charge by refusing the annuity. However the tax damage was already done. The suitability in both situations was abusive. If a Series 7 licensed person has sold these products, they would have been fined under the FINRA rules.
The product is being sold as a single retirement solution. Retirement Planning is already complicated enough to solve. And the insurance agent only does not have the experience nor the education to solve retirement planning problems.
The SEC must look totally for the best interest of the public, and not Insurance lobbyist, Insurance salesman, FPA members, CFP’s or anyone but the general public and their best interest.
Donald R. Rice CFP
President
Money Management Services, Inc.