November 17, 2008
Thank you for considering my comments.
I am a practicing financial planner, independent Registered Investment Advisor, and licensed insurance agent. Over the past two years I have taken it upon myself to attend over a dozen "free lunch/dinner" seminars that have been advertised in my local newspaper or by way of mailed announcements.
There is a common theme to these seminars. Whether targeting seniors (more than half of the time) or other consumers, these seminar programs present "equity indexing strategies" as a means of out performing the stock market at no risk. The attachment of these strategies to an insurance product is often veiled. Most often the presenter is a licensed insurance agent and his product of choice is an equity indexed annuity. Less often, but increasingly, his product of choice is an equity indexed universal life insurance policy. Regardless of the product, the presentation focuses on tax planning, and low risk investing. The key elements are tax deferral (for the annuity) and tax deferral/ tax free access (for the life insurance policy based strategies). In each case the rate of return on the consumer’s "investment" in the equity indexed product is depicted as capturing the upside movement when the underlying stock market index moves up, while avoiding any downward movement when the underlying stock market index moves down. This concept is demonstrated in tabular form in some cases using past stock market index price histories over selected periods. More often it is demonstrated in graphical form showing an up-down cycle of the underlying stock market index superimposed on the hypothetical return of the equity indexed insurance product. One cannot help but conclude from these basic demonstrations that the equity indexed product performance for the future is likely to exceed that of the underlying stock market index with no risk of loss. There is never a disclaimer of past performance relating to future performance, of the differences between interest credits and investment returns, between investment losses and surrender charges. The investment in the equity indexed insurance product is presented as a panacea of high return, low risk investment.
I have brought these misleading sales presentations to the attention of my state’s insurance regulators. They have, at my request, sat in on one or more of these seminars. While they will take action against the presenting insurance agent if any part of the sales presentation that is specific to a particular insurance product does not meet with their guidelines, they are not inclined to comment or act on those aspects of the sales presentation that are not specific to a particular product. In short, they often do not comment on the content of these seminars since they seldom present material that is definitively connected to a particular insurance product.
There seems to be a large hole in the network of regulations designed to protect consumers from false and misleading claims made by salespeople in the case of equity indexed insurance products. The products are sold as an investment and as an seemingly attractive alternative to conventional equity investments. Yet the sales materials and presentations are not regulated in the same manner as is appropriate to sales presentations and materials used in securities sales presentations. These are fixed (non-securities) insurance products, yet the most misleading components of the sales materials and presentations are not regulated by state insurance regulators. The consequence is that, despite the best efforts of federal and state regulators to provide protections for the investing public, many engaged in the sale of equity indexed insurance products are able to make misleading and dishonest sales presentations outside of regulatory oversight. One viable solutions to this problem is to treat these products as securities and bring the sales presentations and materials under the regulatory oversight of securities sales regulation.
I urge the SEC to follow through with the proposal to treat equity indexed annuities as securities if only for the protection that such treatment affords the investing public. I would urge the SEC to extend this treatment to the sales of equity indexed universal life insurance products when used as an investment alternative as well.
Thank you,
Bradley Allen, CFP®
Poulsbo, WA