November 14, 2008
The SEC should regulate the sale of equity indexed annuities (EIAs) and either force life insurance companies that market these products to improve the terms of these contracts or abolish the sale of them completely. Annuities were designed to aid people with their retirement savings. EIAs are a farce; the only person whose retirement is secured by the sale of this type of product is the life insurance agent who makes the sale to the unsuspecting person that put their trust in the insurance agent who sold it to them. EIAs typically have commissions of at least 10%
They are marketed as having no risk with the potential for capturing positive market investment performance. The typically have onerous surrender schedules of up to 15 years and provisions which may force annuitization as the only way the unsuspecting buyer will ever get their money back. In down markets the buyer earns nothing. In up markets, the contract contains “caps” and “participation rates” which drastically restrict the amount of money the contract owner will ever make. These caps and participation rates can and are controlled by the issuing insurance company and are changed to the detriment of the contract owner. Regulate or ban the sale of these products. If the consumer wants no risk go into a regular fixed annuity where some return is guaranteed regardless of market conditions. If the consumer wants the potential for market returns, go into a variable annuity, where they get true market returns which are not reduced by “caps” and “participation rates”. You can’t have it both ways, it’s that simple.
Sincerely,
Larry Breen, CFP®, CLU, ChFC
President & CEO
Breen Financial Management, Inc.