July 11, 2008
Thank-You for the opportunity to comment on the proposed rule. I currently have a retirement planning practice with a focus on the senior market. I have many clients who are very pleased with the indexed annuities they have purchased. I have been offering indexed annuities to clients where they were suitable since 2000. I have never had a complaint by a client related to the sale of an indexed anuity. They are not suitable for every client, however, for the client who seeks safety of principal and the prospect of conservative returns without risk, they are very attractive in many cases, returns have averaged between 4 and 8 % since 2000. In my opinion the returns have been acceptable when compared to other products with the same level of safety. The average rate of return has been very fair when compared to CD returns over the same period. It's also important to note that not a single fixed equity-indexed annuity contract holder has ever lost a penny. I have met several annuity owners who purchased Conseco contracts. When Conseco went bankrupt in 2002 they never lost a penny of interest or principal and they still hold the contracts today. Compare that to the Conseco stockholders who lost everything. At the time, Conseco's bankruptcy was the second largest in US history if I'm not mistaken. I find it amazing that Conseco is back in business and many of the contract holder's today are not even aware that Conseco went bankrupt. How can these products possibly be labeled a security? These products were never designed to compete with the market, they were designed to compete with CD's, and thus offer a comparable level of safety.
My sincere hope is that the ruling is not in response to efforts made by FINRA and the securities industry at large. It is obvious that FINRA and the securities industry will profit greatly from this ruling. They have been attacking the sale of these products for years. They have lost millions in revenue from the sales of fixed indexed annuities in recent years. I've seen many seniors who have lost their life savings in the market. I have clients who had to take out reverse mortgages on their homes because of recent downturns in the market. Had they purchased an equity-indexed annuity, they could be living in comfort, yet the brokers that advised them came under no pressure at all, and make the same recommendations even today. Securities and Insurance professionals have two completely different philosophies, they have both been trained differently. I have several friends who are securities broker's and the difference in our views is plainly evident.
I don't fault the broker's their training has given them different insight. Insurance is about safety. These products are not securities. Some of the products I offer have a 3% minimum guarantee. If the market crashes they never loose a penny. They always walk away with principal and interest. Is there a single security that can offer the same benefits? How can they then be called a security? I understand part of the reason is that the return is not gauranteed due to the fact it is tied to an index. While that is true, there is still an underlying gaurantee. There funds are never in the market and therefore there is no risk. If these products are labeled a security, then so should CD's, money market accounts and a host of other products.
I also note that you showed the NBC Dateline special when considering this ruling. I consider this a very unfair and biased review focused on one thing--ratings. TV is about ratings, there are always a few bad apples in every bunch. Had the show shown suitable transactions and happy EIA customer's talking about the products,how many people would have watched the show? It would have never aired--good news never sells. The industry has made great strides in recent years. Suitability has improved exponentially and will continue to improve. These are still relatively new products. It is also a commonly held misconception that these products are only sold due to a high commission which is untrue in most cases. If I sell an FIEA with an 8% commission--which may seem high--it is still a one-time commission. If I receive 1% or 2% per year for assets under management for the next 20 years didn't I receive far more in commissions?
Annuities do have surrender charges, which I always explain to clients. I have them sign there name under the surrender charge schedule on the contract. However, if the sale is suitable the surrender charges are a non-issue. They can take penalty-free withdraws and annuitize the contract. Some contracts are now nearly 100 % liquid from day one. Compare that to some REIT's and bonds sold prematurely and the surrender schedule does not present much of an issue. The fact is that about 90% of all fixed annuity owners never surrender or annuitize their contracts. I can honestly say that 90% of my clients never even take a withdraw. They are primarily interested in parking the funds until their death or in case of emergency. Historically speaking there has never been a safer place to put your money due to the regulations that insurance companies must follow. How can a product this safe be classified as a security.
Finally, as an independent advisor who has chosen to only offer safe, conservative products to clients rather than securities I oppose this ruling. I know that by offering these products I will never have to make the call to the client informing them they have lost money. The impact to my business and family will be devastating. It would completely change my life and the lives of potential clients who will never be given a chance to purchase one of these products--perhaps preventing them from financial catastrophy at an age at which they cannot recover from a dramatic downturn in the market. The insurance industry at large will also be dramatically impacted in a negative way by this ruling. Many will loose jobs, careers and perhaps worse. In my opinion this will have a even greater negative impact on the consumer which the ruling is intending to protect.
Please give the insurance industy a period of time to respond to the problems concerning these products today. The regulatory bodies in each state have made great efforts to increase awareness and enforce suitability guidelines in recent history. On a percentage basis I think you will find the number of complaints to current regulatory bodies very small. The securities industry did much of the same in the early years and it still continues today. These products are in their infancy when compared to most securities.
Finally, thank-you again for the opportunity to comment on this proposed ruling. I hope your final decision will be based on the facts rather than intense lobbying by those who stand to benefit financially from the change.
Respectfully,
Michael D. Wood