August 18, 2008
On Wednesday, June 25, 2008, the SEC proposed a new rule (Rule 151A) to regulate most fixed indexed annuities as securities. The SEC takes the position that state insurance regulation of the sale of these annuities is inadequate to protect purchasers. I would suggest that the SEC shoud get it's own house in order first befiore trying to regualte any other products or industries. According to the SEC, purchasers of fixed index annuities are exposed to a significant investment risk, this does not make any sense when you consider that the consumer has a guaranteed rate of return (fixed) with the upside potential to participate in a portion of an index.
The purpose of this change, in the eyes of the SEC, is to regulate sales practices, again I would point to the fact that there are many regulated investments that do not deliver on what the salesman says. Why don't we start out by showing the consumer the actual rates of return on individual funds in the prospectus over a given period of time vs. the average, BIG DIFFERENCE.
No one benefits from an unsuitable sale in the long run. Those salesmen and saleswomen who sell a product regardles of it being fixed or variable who choose to not do the ethical thing should loose their license. We can look at any industry and find the bad, however this is also alot of good to be found within those who represent, fixed and indexed annuities. Our insurance commissioners and the insurance companies have worked diligently in the supervision of these sales and their agents. Changing the definition of what is a security will not benefit the consumer and will only add additional cost to the consumer, not protect them.
Finally, this will have a significant impact on small entities in the insurance arena. Sales will reduce and costs will increase. A large number of those selling index annuities do not have a securities license and many will choose not to apply. There will be greatly reduced revenue for many small firms. There may be layoffs at a time when unemployment has been rising. I direct you to the Regulatory Flexibility Act and the Small Business Regulatory Fairness Act. I believe the data will show that the proposed rule would have a significant impact on small entities ($5 million assets or less) and would cause an annual effect on the economy of $100 million or more: A major increase in costs and prices for consumers and would have adverse effects on competitive investment or innovation.
As an educated financial professional I think that all we are looking at is a well orchestrated "Product Grab" by the equities industry that is seeing many of their retierment dollars leave the equities market in favor of a more secure option. I urge you to look at the overall impact that this proposed regualtion would have on the financial industry as a whole.
Regards,
David M Edwards
CEO
Quantum Wealth Financial Insurance Services, Inc.