July 18, 2008
Thank you for the opportunity to provide comments on the proposed rule 151A.
I oppose the regulation of Fixed Indexed Annuities as securities.
The SEC suggested that People buy Index Annuities for many of the same reasons they buy Mutual Funds. I strongly disagree with this stance. People buy Fixed Indexed Annuities because they seek the safety of a guarantee against loss of principal. People who buy Mutual Funds do not have that guarantee making these products very dissimilar. It would be more accurate to say people purchase a Fixed Index Annuity for the same reasons they purchase a CD or Traditional Fixed Annuity.
The primary reason that the average issue age for Fixed Index Annuities is 64 as noted on page 16 of the SEC proposed rule summary is that Seniors tend to have less of a horizon to recover from market losses giving Fixed Indexed Annuities great appeal to those who can ill afford dramatic downturns in their retirement savings.
It is my opinion that the load fees that are associated with security products can often be excessive especially over a period of time and they are rarely ever understood by the purchaser. Lengthy prospectuses are left with the consumer but very rarely ever read or fully understood by those they are meant to protect. This is not the case with Fixed Index Annuities. The disclosure forms, contract, and product brochures provided with Fixed Index Annuities are consumer friendly and much easier for the average person to comprehend. Fixed Indexed Annuities also offer a free look period of 10-30 days allowing the client ample time to review their material and receive a full return of principal should they change their mind.
In speaking towards Ethical standards I have not seen any evidence at all to support that the SEC can do a better job than the states have been doing. Looking at the current Mortgage crises and the complaint index on Variable products that the SEC oversees compared to the complaint Index for Fixed Index Annuity products I find no compelling reason to think that the SEC can do a more adequate job of consumer protection.
In most states suitability regulations and the sales practices required by insurance companies already meet or exceed that of federal requirements. Complaint resolution through a department of insurance is faster, cheaper and much more effective than that provided by security law.
It is my firm belief that if the SEC steps in these valuable products and the consumers will suffer. Only Brokerage houses will benefit from the SEC taking over Fixed Indexed Annuities. Please abort your plans to take over a product that is clearly a Fixed Annuity and allow the States to continue working with Insurance carriers, wholesalers, and sales professionals to improve how these valuable planning tools are marketed and sold to consumers. In the last few years the States have taken great strides to require higher suitability standards.
In closing if you really care about the consumers then you should allow the states to continue on with their progress.
Thank you.