August 14, 2008
I am commenting on the proposal to classify equity indexed annuities as a security. The concern by the SEC to protect the consumer should be applauded, however I do not feel that classifing annuities as securities is the answer.
I have been in the financial services business for over 20 years and at one time was fully securities licensed. Over the years I have gravitated toward the safe, guaranteed fixed side of the industry. I felt that I wanted to provide guarantees of principal to my clients and they were looking for that so I got out of the securities side to concentrate on those aspects.
The equity indexed annuity allows clients to postion their money so they can earn more than other traditional fixed annuity products while still maintaining the principal guarantees they want for their safe money. Most clients still have money invested in the market subject to risk but they want a major portion of their money protected from market risk.
These products are first and foremeost principal guaranteed with upside potential and my clients like that feature. It is interesting that my clients like the fact that they can earn more than the minimum guaranteed interest if the index performs better but they know they are safe and protected if it does worse, but the SEC feels that the possiblity of earning more than the minimum guarantee makes them securities. There seems to be a disconnect somewhere. Is a whole life policy a security because my client can "earn" more cash value than the minimum guaranteed value through declared dividends? Of course it is not a security and neither is an indexed annuity.
In order to purchase an indexed annuity a client must complete suitability paperwork from the carriers we represent. As I stated above they do not put all of their money into indexed annuities but a combination of fixed rate annuities and other financial instruments that they may own.
I feel classifying indexed annuities as securities will put an undue hardship on my business with no additional benefits to my clients. Please keep these policies as insurance products, that is how they are designed.
Respectfully,
Joe Begalle