August 11, 2008
Dear Commissioner Cox,
As a professional who is very concerned and deals with seniors and their finances on a daily basis, I would like to applaud your efforts to protect them from fraud and unscrupulous advisors. There is nothing worse then sitting with these nice folks and hearing such horror stories. It makes the work of real professionals like me more and more difficult.
I would however like to voice my concern over your latest statements and initiatives about equity index annuities. Lets start with whom you are partnering with in your investigation, the NASAA. Of course they are for equity annuities being considered securities because the SEC, FINRA and the state security bureaus lose out on millions of dollars of fees they could be collecting. The conflict of interest here is glaring. These products have already been reviewed, investigated and approved by the NAIC and each state bureau of insurance. I strongly urge you to speak with Commissioner Susan Voss from the State of Iowa Department of Insurance, who is a foremost expert in equity index annuities if you want real facts, figures and information.
By the SECs own definition, a vehicle that can not lose value because of equity market losses is not an investment. Your interpretation of Section 3(a)(8) is quite flawed. Why is there concern that a fixed annuity contract might actually provide a greater guarantee then the stated minimum? Should we not be striving to offer people most vulnerable to stock market catastrophes the opportunity to receive returns that enhance their financial position not destroy it. A question for you, which do think a senior would rather have today, an equity index annuity (even with a surrender charge) or Bear Stearns stock? Where is your outrage and protectionism for our seniors from these preditory investment companies who have lost their clients billions of dollars in shoddy, fraudulent and inappropriate investments like that?
I also take umbrage with your assumption that seniors do not have the capacity to think for themselves or are so unintelligent or unsophisticated that they can not think, understand or make decisions for themselves. That is just down right insulting.
Your statement that index annuities are one of the vehicles most often involved in senior investment fraud is either completely misguided or at worse blatantly false. The real facts speak for themselves. The complaint ratio for the index annuity industry is less then .1% of all index annuity sales. If you want to spend good energy going after chronic offenders of the senior market, you don't have to look too much further then Wall Street, whose firms have paid billions of dollars in fines to your office for their malfeasance, fraud, lies, manipulations and nefarious deeds. Why do you continue to protect them? Better yet, why are you partnering with the lobbyists, committees and associations that help to proliferate the above described actions? Isn't that a conflict of interest?
If fixed annuities are so bad for the consumer, then why is your government pension invested in one? Or that of pensions throughout the country for that matter? Let me be perfectly clear, I do not believe equity index annuities to be the panacea of vehicles for senior assets. There certainly are times when they are quite inappropriate. Advisors who misrepresent themselves, the products and take advantage of a vulnerable client should be dealt with quickly and severely, but to make blanket and overly generalized comments are to the detriment of the public not the benefit.
To many people the advantages or benefits of an index annuity far out weigh their disadvantages. Lets list a few of them for you:
1. Guarantee of principle, the client can not lose value in a down stock or bond market (I havent seen any sub-prime bond funds do that yet)
2. Guarantee of earnings
3. Guarantee an income for life (that a client can never outlive)
4. Minimum guaranteed rates of return
There are many other advantages but what could be better for a senior then to know when they wake up tomorrow their money is safe and earning something, even in a market cycle like we have today.
Should a client put money into a vehicle like this if he/she needs it returned in short period of time? Of course not. Then again, they shouldn't be investing it in stocks either like your colleagues at the brokerage houses advise. Can there be better communication between the insurance companies, advisors and public? Of course, and the insurance companies are doing just that as we speak. This is a work in progress just like everything else. These companies are continuing to evolve and provide better services, products and advisors just like in every other industry.
Again, I would like to say thank you for your concern and attempts to protect one of Americas greatest assets, the senior citizens. I would just urge that you expand your investigation and enhance your knowledge beyond the current lobbyist groups, associations and industry leaders who would love nothing more then see index annuities fail, because it is to there better interest. Please consult the true experts in this arena like Commissioner Voss or Mr. Jack Marion or NAIC. I also would be available to assist you in way that I possibly could.
Thank you for your indulgence and attention in this matter.
Sincerely,
Thomas J. OConnell