July 30, 2008
I am 61 years old and have been in the financial services industry for 38 years. I have reached the pinnacle of my profession as a member of The Top of the Table, Million Dollar Round Table.
Over these many years, I have seen major changes in my business, some good some, not so good. The current major issue at hand is should Fixed Indexed Annuities be declared
a securities product and regulated by the SEC.
One only needs to know the motivation of the special interest groups, namely Broker/Dealers. MONEY, they want to get a share of the pie
EIA's, now with a new policically correct name of FIA's were developed to be a competitor to many existing products. The major loser since FIA's were developed in 1995 are VARIABLE ANNUITIES.
VA's have modified their policies to emulate an FIA with one profound difference. Why?, because they are getting killed with billions of dollars leaving VA's into FIA's.
Unless you have your money positioned in some very low interest accounts, usually 2%,
the annuity holder can still lose money and lot's of it.
If you are not positioned in the low guaranteed interest account, you are invested in some form of security , usally mutual funds. As we all know, the market goes up and it goes down. If a retiree had invested $1,000,000
in his retirement account under a Variable Annuity during the years 2000, 2001 and 2002 on avererage he would have lost 38% of his investment or $380,000.
I have personally met retirees who experienced this financial debacle. Had that money been in a FIA, that same person would not have made any money, but they would not have lost a nickel.
The reason for this is that FIA's link their market gains to a specific index like the SP 500, Dow-Jones, Nasdaq,
Russell 2000, etc., not a specific security.
Additionally and most importantly, the FIA provides a safety net that states aa annuity holder can never have their principal or any future earnings depleted because of a market loss as the VA positively does. With a FIA, in a down year, the annuitant will not make any money, nor will they lose any money.
As Will Rogers stated,"during bad times he was more concerned about the return of his money than the return on his money.
Why does the government always feel it necessary to fix things that are not broken. The States Bureau of Insurance are entirely capable of regulating INSURANCE PRODUCTS in their own states.
In closing, I have thought for years that anyone in retirement or over 65 or has so much money they can afford to lose a ton, should not be allowed to buy a VARIABLE ANNUITY. In today's insurance jargon, they should be "unsuitable" products for this segment of our society.