July 30, 2008
I find it laughable that there is a proposal to make Indexed annuities a security. What is a security? Oddly enough a security is unsecure. Your principal is at risk on a daily basis. There is an unknown surrender penalty associated with a security, which is the unknown value of the security when you want to sell it. Whereas with an Indexed annuity your principal follows the market but is not at risk to a market decline.
Let me get this straight. Its ok for me to sell an 80 year old an overpriced, underperforming mutual fund or stock that they can loses boat loads of money in, providing he signs numerous forms that are loaded with legalese and written in ultra fine print. Of course the mutual fund company is covered since they destroy a third of the rain forest to provide them with ridicules prospectuses, semi annual reports, and multiple updates all of which are a sure fire cure for insomnia. Yeah that's ok. But if I suggest that the same 80 year old put money into a Indexed annuity that will not drop in value due to a market "correction", (funny how it is "correct" when it's going down), then I am being a commission hound driven by my own greed to make money and not to benefit the client because I am selling a product with a surrender charge.
At least with the Indexed annuity I can show him or her exactly what they will have in that account on a worst case scenario, even if the market goes in the toilet again. We can even take in consideration of the surrender charges, (which the insurance commission should regulate better), and you will still know exactly how much money you can get from that contract on any given day. You can not get that same guarantee with any portfolio regardless as to how diversified it is.
I am in favor of the insurance commission putting a hurt on these insurance companies that have developed a product line that is attractive only in the first year. I am in favor of the insurance commission regulating the surrender charges to a shorter and smaller penalty. I am in favor of the insurance commission increasing penalties to advisors who use deceptive tactics and lies to sell these products. But in no way should the SEC or FINRA be involved in the selling of Indexed annuities. They are not securities because they are secure.