July 31, 2008
The vast majority if not all index annuities do not expose the principle to risk and have minimum gurarntees.
There can be no case made that this insurance product is a security. To push this further will ba a great waste of money for both sides and if pushed far enough will end up in the Supreme Court which without a doubt would rule that this insurance product is not a security.
Two thoughts on why this is being considered by the SEC.
#1. A lot of money is going to these vehicles and the securiites side wants a piece of the action.
#2. A small minority of agents/brokers are using this tool enapropriately or don't fully understand how the product works.
I would hope #2 is the area of concern and if so maybe this could be as simple as rathere than trying to put a square peg in a round hole (fixed insurance product classified as a security) a simpler solution would to require that an agent/broker must be securities licenced to present the product.
This solution would cover Both #1 and #2 as well as overcome the problem of an insurance agent giveing financial advice (Reccomending transfer of a securiteis product into a Fixed Index Annuity).
Under this scenerio the Broker Dealers would get a haircut (part of the commissions) and the insurance companies as well as the SEC would save a lot of money pursuing this idea of somehow someway getting a fixed insurance product listed as being a security.
The real problem stems from a small percentage of insurance licenced sales people abusing a perfectly good tool.
All financial tools are good or bad depencing on how they are used.
Why is there no outcry when a broker puts as much as 100% of an elderly person's retirmentment assets into a mutual fund when if asked most of the investors would say that they would not want or be comfortable with any loss to their ouriginal principle.
One last note: I am financial advisor that is securities licenced and insurance licenced.
Respectfully,
Steven R Hansen