August 22, 2008
Equity Indexed Annuities had a moment in time when due to the unique guarantees they provided a true benefit was derived by the consumer who wanted some upside equity participation without risk to principal on a long term basis. Unfortunately, this product has passed it's useful life on the "shelf" so to speak and is now nothing more than an agent or company profit center. Often we have seen these products in client's portfolio analysis with up to 15 year surrender charges and no real opportunity for "true" growth during that period due to various caps and participation rate restrictions.
Interestingly, these same very restrictive contracts have offered the agents who sell them significant amounts of commissions in excess of 10% of the initial premium. There are representatives who have given up their securities licenses just to avoid a broker dealer registration so they can sell these agent commission lucrative contracts out from under a compliance radar screen.
Truly indexed annuities had a time and purpose when they worked very well offering a benefit that did not exist, however that too has changed as many companies offer alternative annuity products which do not have the restrictions of equity index annuities but offer the touted upside potential growth of equity indexed annuities. Oversight of the sales of these indexed annuity products is needed as the products are marketed as securities without being called that in most agent presentations. The rule that would places these annuities as a securities product is correct and should be implemented to bring the rogue opportunist who misrepresent these annuities back into a true regulatory environment.
Respectfully,
Robert M. Eastmann