July 2, 2008
The proposed SEC ruling to make Indexed Annuities "securities" will do great harm to consumers, insurance companies, and insurance agents. It appears the only possible explanation for the ruling is that the SEC is bowing to the shrill cries from the brokerage world over loss of "market-share" to IA's. This "Grease the squeaky wheel" approach will make brokers happy, but to the detriment of the consumers the SEC is supposed to be protecting.
Since both principal (if held to term) and credited earnings are free-from-risk in an indexed annuity (and no VA or security offers these benefits without additional strings attached), it's clear the only "risk" in IA's is the "unknown" -- just how much one will earn.....but, wait, this is the same "risk" with traditional fixed annuities ("portfolio" and "banded" types)..does the SEC propose to rule traditional fixed annuities are securities also? I don't think so.
The average consumer has earned less than 3% on his market investments over the last 25 years, while the market was producing double-digit returns. Why do consumers capture only about 25% of market returns? Three reasons:
1. Poor advice from the brokerage world
2. The brokerage/mutual fund world takes from 1% to 4% of the return
3. Consumers can't control their emotions They "buy high" and "sell low"
Indexed annuities remove those factors and allow consumers to capture more of market returns, with no risk and less cost. In light of these facts, it quickly becomes very clear there is no logical or rational reason to rule IA's "securities", other than the SEC is bowing down to Wall St......it is SHAMEFUL, and consumers will put more money at risk and get less return for doing so, as a result of this ruling (assuming it becomes law).
Sad state of affairs when an agency created to protect consumers sides with the "money" instead of with consumers......no word describes it better than "Shameful".
- David Gray