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

[senior-advisor-indiana]

There are suitabilty forms that have to be filled out. It shows there assets and where they are located. Also shows thier income and expenses. They also ask the objective for buying the annuities. I ahve been told that they will actually deny applications if the company doesn't see a good fit. It has never happened to me but that is the word.

I never make the personal recommendation of how much or what product. I leave it up to "my team of proffesionals" to come up with 2 solutions for them;-)

 

[joshril]

There are suitability forms that have to be filled out. There are always going to be unethical agents in all sectors of financial services sales. If I go sell 20 Right Start Plans, as a GA to Assurant, I doubt my RSD would say anything. Should he, yes, but not all checks and balances systems are fool proof. I will eventually get sued and that's the end of it. Should EIAs be regulated as securities products. I will answer no..... due to the fact the customers do not hold actual securities. Should agents be selling 10% bonus products that require annuitization and have virtually no liquidity... no... Perhaps a more thorough look at new applications or a principle review requirement similar to that required on securities products would solve some of the problems with unethical sales. The bottom line is anytime money is involved with any type of sales (insurance, cars, houses, etc...), there will be bad apples.

 

[JMO Fan]

In its 1986 announcement of Rule 151, the "Safe Harbor" rule for insurance, the SEC wrote several paragraphs about indexed products. It said that all indexed products that determine the rate at the end of the period, i.e., by looking back at the past year's (or month's) change, are outside the safe harbor. Most EIA company attorneys skip over that SEC discussion of indexed products, and (because the SEC refuses to issue legal opinions) then opine that the company doesn't need to register EIAs as securities.

If the emphasis in sales of an annuity is its investment value, the SEC (Rule 151) says it is outside the safe harbor (i.e., it's a security). EIAs are all sold based upon investment value (not because they assure a life income, which is its insurance value). Although insurers don't invest much of the EIA premium in stock indexes, the index (S&P 500) basis shifts the investment risk to the investor. Shifting investment risk to consumers also places EIAs outside the safe harbor, making them securities.

State securities offices have become much more active lately in revoking licenses of agents who tout EIAs in lieu of other investments. They have begun to enlist the support of state insurance departments in such cases. Promoting EIAs as safer or offering better returns than other securities is a securities transaction, requiring NASD licensure as well as compliance with securities laws.

 

[Crabcake Johnny]

Well written.

 

[senior-advisor-indiana]

What risk is there to the consumer? There is no risk and obviously they are SAFER than securities. Why would you need a securities license to say that? DO you need one to say CD's are safer? I don't believe so. EIther I read your post completely wrong or I am an ***. please no comments.

 

[JMO Fan]

You're selling investment safety, not annuity benefits. That makes it a security. Yes, you need a securities license. (In my state, the state securities office will ask the DOI to pull your insurance license for touting EIAs over other investments--and it will be done.)

 

[arnguy]

Wow, what state would that be?

 

[arnguy]

A while back there was a discussion of whether or not annuities are an "investment." I posted definitions from a couple of dictionaries and they definitely stated that an annuity is an investment. Now, if SEC regulations define an investment differently, what is the Chapter and Verse of that regulation? There is a minimal risk involved in annuities, howver, in my state annuities are covered up to a certain limit under the state guarantee fund.

 

[JMO Fan]

SEC on Annuities (Rule 151): Federal Register, Vol. 51, No. 107, June 4, 1986, pp 20254-62

Some of it is discussed here: http://www.actuarialoutpost.com/actu...ad.php?t=60315

 

[Crabcake Johnny]

I'm not sure if risk has anything to do with whether or not something is an investment. There are CDs, bonds and notes that are near zero risk yet they are investments.