November 14, 2008
To Whom it May Concern:
I am writing to add my comments to those already received regarding the issue of determining the status of fixed or equity indexed annuities as securities.
I have been a member of the FPA since its founding in 1969. In fact, I am life member #3 and have served on the National Board of the IAFP and the Board of Regents of the College for Financial Planning. In my capacity as owner of the Investment Training Institute, Inc., I was personally responsible for the training of over 250,000 securities representatives and principals. For the past several years, I have been Senior Editor - Securities for Kaplan Financial Education. I was one of the six industry representatives that assisted the NASD in the preparation of the initial Series 6 examination content.
As a result of my background, I feel quite competent to judge whether or not something is a security and, the annuity product that is the subject of this discussion definitely is NOT. I know that is not the position taken by the FPA, but, at least in this case, they are wrong.
Sure, there have been sales abuses with the product, particularly in the case of seniors (as you can probably tell, if I got started in this industry 40 years ago, I am one of them myself). But, haven't there been abundant abuses, especially in the past year, with securities? How about the ARS debacle? And, how many people lost valuable capital in such stalwarts as Fannie Mae and Freddie Mac?
Let me share a personal story if I may. Two years ago, I placed a significant sum into two equity-indexed annuities; one with a 7-year surrender period, the other with a 10 year one. At the time, the Dow Jones Industrial Average was a bit over 12,000. Today, even after a 500+ jump yesterday, that same average is 8,835, over 26% lower. And, guess what the value of my fixed-index annuity has done? Because the DJI went up after my purchase to 14,000+, my account value has actually increased. You see, I received the benefit of an up market without the risk of the decline. And, since risk of loss is one of the characteristics of a securities investment, you can't convince me that my annuity is a security. No way!
There is plenty of regulation of these products from the state insurance regulators. Maybe they're not doing the job of enforcement that they should regarding aggressive agents, but what make you think that the SEC will do any better? Look how many years it took to weed out the penny stock fraudsters (and some of them are still at it). The difference is, that with those securities fraudsters, you lose everything. Even with a poorly sold EIA, all you will lose is a surrender charge and there are ways to avoid or minimize those.
Look, the SEC is already overburdened, don't put more on your plate that you can't eat. Continue what you are doing with NASAA, FINRA and AARP to raise senior awareness, but don't call an EIA a security, it is not.
Thank you for listening,
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Chuck Lowenstein
Senior Editor - Securities
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Kaplan Schweser
Kaplan Financial Education
Divisions of Kaplan Professional