Equity Indexed Annuities: Are they the real deal or junk products?

[JMO Fan]

I became securities licensed because I saw the handwriting on the wall (among other reasons).

But let's not forget, the real power behind this is not in any sense an attempt to protect seniors or anyone else. It is the brokerage industry that is suffering hard times and seeing a huge move away from their industry to the insurance industry. As always, the money is the motivation and the rest is just the excuse to get rid of some competition.

Which is why this will matter a lot. This powerful group will push them hard:

NASAA Commends SEC for Advancing Equity Indexed Annuities Proposal
Tyler: “Shielding investors from the predatory sale of EIAs is one of the most important steps the SEC can take to advance the cause of Main Street investor protection.”
WASHINGTON, D.C. June 25, 2008—The North American Securities Administrators (NASAA) today commended the U.S. Securities and Exchange Commission (SEC) for issuing a rule proposal related to the classification of equity indexed annuities.
“This important proposal, as outlined at today’s SEC open meeting, would, if adopted, represent a significant step forward in the ongoing fight to protect investors, especially seniors, and we thank SEC Chairman Christopher Cox for his leadership on this issue,” said NASAA President and North Dakota Securities Commissioner Karen Tyler. “NASAA has long maintained that EIAs are securities and has urged the SEC to assert its jurisdiction over these products so that all investors who purchase EIAs can benefit from the strong protections afforded under the nation’s securities laws.”
... “We commend the SEC for moving forward with this proposal,” Tyler said, adding that NASAA looks forward to reviewing and commenting on the proposed rule. Tyler said the proposal, as described at the SEC’s open meeting today, “appears to remove the uncertainty that has surrounded the legal classification of equity indexed annuities for over a decade.” If adopted, Tyler said, “the proposal will subject these investment products to rigorous disclosure and suitability standards, and will deter abuse by exposing unscrupulous salespersons to strong sanctions under our securities laws.”
...
“Millions of investors across the country, many of them senior citizens, need protection from the fraud and abuse that is taking place in the sale of EIAs. We applaud Chairman Cox for his commitment to strengthening protections for EIA investors.”
The sale of equity indexed annuities has risen dramatically since 1995, when they first appeared on the market. As sales of EIAs have risen, state securities regulators, as well as the SEC and the SROs, have received an increasing number of complaints about EIAs. According to a recent NASAA enforcement survey, 34 percent of all cases of senior exploitation reported to state securities regulators involved variable or equity indexed annuities.
...Tyler said the proposed rule would serve to close a regulatory gap, which has proven to be particularly harmful to senior investors. EIAs have generally been regarded as exempt from regulation under a provision of the Securities Act of 1933. As a result, many investors have been subject to fraud and other misconduct in the offer and sale of EIAs without the protections that the securities laws normally afford.

NASAA Commends SEC for Advancing Equity Indexed Annuities Proposal - 6/26/2008 - insurancenewsnet.com

 

[xrac]

I became securities licensed because I saw the handwriting on the wall (among other reasons).

But let's not forget, the real power behind this is not in any sense an attempt to protect seniors or anyone else. It is the brokerage industry that is suffering hard times and seeing a huge move away from their industry to the insurance industry. As always, the money is the motivation and the rest is just the excuse to get rid of some competition.

Well said!

 

[JMO Fan]

The proposed rule for those who want to comment. It's a big document. Cheaper than sleeping aids.
http://sec.gov/rules/proposed/2008/33-8933.pdf

 

[sman]

I do not see the ethical agents being harmed by this. In fact, the opposite would be true.

Sure they will. When a commission has to go through your broker dealer first, they take a cut. So the guy selling the index annuity and getting 5% now may only get 3%-4%. So it hurts their bottom line.

 

[Crabcake Johnny]

How 'bout when that agent can't even get the appointment due to all the bad press.

 

[JMO Fan]

Quick read of the proposed rule is that all EIAs would be securities. It could also extend to all annuities, UL, and excess interest life. Separate accounts for all!?

 

[sman]

How 'bout when that agent can't even get the appointment due to all the bad press.

When I meet with a prospective client, my first meeting is just a fact finding session. I gather all the information and based on their goals, make a recommendation. Sometimes that includes annuities. All the "bad" press hasn't limited my appointments. I guess if I told every prospective client up front that an annuity was the answer to their problem, they would likely turn me away (and rightfully so). But I really don't believe the "bad" press has done anything to hinder getting an appointment.

 

[Mr. Bill]

All I can say is that

"And they won't beat most markets in a 10 year period or for any extended period of time for that matter"

indicates a poor understanding of the equities markets. Just ask John Bogle.

 

[bobson]

Take a look at the super high comission products and let me know which one isn't sticking your client in for 15 years or mitigating their returns DRAMATICALLY. Always a tradeoff.

They won't beat most markets in a 10 year period or for any extended period of time for that matter. They are designed to beat fixed rates (at the time of issue) by about 1% and not much more.

So let me get this straight... You are "sticking your client for 15 years" in a bad annuity with a long surrender charge but in order for equities to be good they have to be held for at least 10 years?

Am I the only one that sees the irony???

 

[xrac]

Quick read of the proposed rule is that all EIAs would be securities. It could also extend to all annuities, UL, and excess interest life. Separate accounts for all!?

FINRA is constantly reaching for more power. They will regulate all insurance and all financial transactions if they have their way.

Brokers, advisers blast Finra proposal - InvestmentNews