August 30, 2008
Indexed Annuities are fixed annuities that, like tradi-
tional declared rate fixed annuities, guarantee a min-
imum interst crediting rate and provide the opportunity
to earn interest credits in excess of that guarantee.
With a traditional fixed annuity, the crediting of excess
interest depends upon the performance of the company's
overall investment portfolio. Similarly, and indexed
annuity provides the opportunity for excess interest
credits based upon the measurement of an external stock
or bond market index. While both products expose the
consumer to fluctuating levels of annual excess interest
credits, in both cases the consumer has no risk of loss
or premium or prior creditied interest (unless the policy
is surrendered during the surrender period in which case
a surrrender charge may apply). The indexed product
offers the consumer a strong minimum guaranteebacked by
the insurance company along with the opportunity to earn
excess interest that is hopefully higher than traditional
principal-protection products.
Both the design and sale of annuities are highly
regulated by state insurance departments as are the
companies who manufacture and sell them. State insurance
regulations cover, among other things, suitability of
insurance agent recommendations regarding annuities,
annuity disclosure and advertising, agent licensing
and training, unfair trade practices including
misrepresentation of product terms and conditions, and
enforcement actions and penalties for noncompliance with
sales practices requirements. In addition, guaranteed
minimum values for annuities are regulated through the
Standard Nonforfeiture Law and are applicable to all
fixed annuities.
The securities regulationwill add little benefit to
consumer protection. Many states have already adopted the
NAIC Annuity Disclosue Model Regulation and most, if not
all, of the major index annuity carriers have mandated
the use of disclosure statement or certificate
describing all important terms and conditions of the
annuity contract, including prominent disclosure of
surrender charges. Many, if not all, major indexed
annuity carriers conduct suitability reviews of all sales
in all states. Suitability reviews required of brokers
under FINRA rules would not add any meaningful
protections over and above what is already being done.
The guarantees provided by and indexed annuity offer
consumers significant protection against investment risk.
The DJIA has suffered a decline this year in excess of
20% from its October 2007 record, yet a fixed indexed
annuity purchaser will not lose any principal due to
such market performance, unlike a consumer of an equity
security or a stock mutual fund, or a variable annuity.
The annuity interest crediting formula protects the owner
against loss due to drops in the index over the creditng
period and while the guarantees provided certainly come
at a a price, this is fully disclosed to the purchaser.
Whoever proposed this 151A is making a clear ploy to
garner more business for Registered Representatives and
wants ALL THE BUSINESS. The ruling proposed if passed
into law has the ability to create more unemployment in
AMERICA, NOW. With already a good many people out of
work, I don't beleive government wants the percentage
of people unemployed to go even higher. I my self have
a securities license, however, have not been able to find
a broker dealer willing to employ me since it has in the
past represented such a minute portion of my annual
business. Plus most broker dealers want a significant
per centage of our commission making it prohibitive to
do business with them. SINCE THERE IS PLENTY OF
COMPLIANCE BEING DONE ALONG WITH SUITABILITY REQUIRED
BY EACH COMPANY, THE STATE OF MINNESOTA WHERE I LIVE
AND DO BUSINESS, I SEE NO REASON WHY A BROKER DEALER
SHOULD BE ENTITLED TO WORK ALREADY THROUGHLY BEING DONE
TO HELP PROTECT THE CONSUMER.