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

[Crabcake Johnny]

First of all everyone - if any person including agents and financial advisers is using the words "no risk" for ANY investment-related product you shouldn't be in the field. There is no such thing as "no risk" for anything.

 

[JMO Fan]

Laugh it off & lose your license

What a lunatic!! No offense, but your post makes no sense.

Calling me a "lunatic", followed by "No offense"? Who's kidding whom?

And you clearly aren't very familiar with indexed annuities. The client shares no risk with the insurane company in the investment into the indexes.

Actually, I have followed their development for 20 years. Before becoming a regulator I managed annuity pricing as an actuary. The main reason companies can pay higher commissions on indexed annuities than on fixed FPDAs is the transfer of investment risk to the contract.

And I find it hard to believe that state DOIs will revoke a license because you tell someone a product with a guaranteed rate of return is a safer investment than a securities product.

State securities office has no reason to lie to me. And my boss, the DOI commish, has said very emphatically that agent licenses be pulled for just what you said here. You'd better adjust your thinking.

CD's, savings accounts, all fixed annuities... Come now... Do you even hold a securities license??

No, but if you do, you'd better be very careful.

 

[senior-advisor-indiana]

The moral of this story....No one should use this forum as fact. Obviously it is moslty opinion and people who are scared by bad stories. There is no more risk in a FIA that gaurantees a minimum 3% on 100% of contract value than there is in a CD paying 3%. FIA are safer than securities. YOu do not need a securities license to say that, you need common sense.

Obviously there isnt a place you can put your money where it is absolutley safe. But there is alot more protection in a FIA and CD. Have you looked at a pyramid where it shows risk versus return? FIA, FA , CD's are at the bottom, securities are at the top. Sounds like JMO has an agenda here. Your info is nothing more than scared opinions.

 

[James]

State securities office has no reason to lie to me. And my boss, the DOI commish, has said very emphatically that agent licenses be pulled for just what you said here. You'd better adjust your thinking. No, but if you do, you'd better be very careful.

I find this statement rather strange also? Yet though the Thought Police are seemingly out in force in society today. Yet though, I have little patience for those who tout such nonsense. I still do not know what State this person is talking about? I mean this person is claiming things that if true he shouldn't be on a public forum, claiming such as my Boss the DOI Commissioner and his friends at the State Securities Office and expressing a rather Therefore attitude as speaking in first person for those people. What State are you referring to JMO? I would like to call your so call DOI Boss and ask them in person if they would like to comment about pulling license for such practice as selling Annuities as a Safe Harbor.

 

[JMO Fan]

Insurance, Banking and Securities have always had obvious problems within the family of the Industry. Yet what the NASD and SEC is now attempting to do is beyond the pale of common sense. I mean let's look at the Merrill Rule, do we need to go any further? Now though you have the CFP Organization and their desire to become more powerful even at the cost of other Financial Destinations, notable ones at that while they are out their begging for their SRO.

A EIA is a Fix Annuity, no matter how twisted the logic of claiming them as a Security. If they win then all Insurance Products of any Cash Value including WL (since the investment portion is often touted) and the HSA will become a Security Product.

As product support actuary for a major carrier, one of my tasks was to review each life & annuity marketing piece. If half of the material emphasized investment aspects, I flagged it for the Legal Dept. To avoid classification by the SEC as securities, the co attorneys would then work with marketing to revise the emphasis to insurance.

This cautionary work was the direct result of SEC Rule 151, i.e., the Safe Harbor Rule for Insurance. (Note that it is applicable to insurance, not to CDs and other investments.) In its announcement bulletin for Rule 151, the SEC put all indexed products outside the safe harbor. The NASD statement that all EIAs are securities is based upon that rule.

The first EIAs were put into separate accounts, and registered as securities. Later, a few attorneys talked their companies into issuing EIAs in the general account. Soon after adopting Rule 151, the SEC stopped providing private opinions on whether insurance products were securities (i.e., requiring registration); but they never changed the rule.

 

[senior-advisor-indiana]

Just opened the local newspaper. Front page......."Banks being forced to comply with securities regulaitons" . Tehy are going to have to shut their doors or get securities license. Also they were fined for false advertising their "SAFE" CDS. I guess no one will be buying CD's anymore since they aren't any safer than securities. How stupid would that be. There new advertisement......" High Risk 4% apy" Beware of depression, you could lose all your money.

 

[senior-advisor-indiana]

Has anyone checked on these rules that JMO is talking about. Seems he has problems with EIA's and discounts on LTC plans. DO you even know what you are talking about. Are you making up all these rules or changing them to match your opinions?

 

[James]

Has anyone checked on these rules that JMO is talking about. Seems he has problems with EIA's and discounts on LTC plans. DO you even know what you are talking about. Are you making up all these rules or changing them to match your opinions?

Basically he is touting this opinion, http://sec.gov/rules/concept/s72297/hippen1.txt basically what they are saying is the risk is about the "Excess Rate" above that, that is guaranteed under the Guaranteed Rate. In other words since their is an unknown on the excess the people buying the EIA do not understand the risk of the excess rate, now that is really pulling some creative thinking out of one rear end if you ask me but that is where the real issue is, the excess rate that may or may not materialize. Plus most (if not all) States refer to "Seperate Account" as found in the VA before they change destination of the product as a Security. This is nothing more then a turf war between the Federal SEC and State DOI's.

 

[joshril]

Calling me a "lunatic", followed by "No offense"? Who's kidding whom?

The "no offense" was sarcastic.

I never said that EIAs had no risk!! There is no investment risk to the client. If the index loses money, the cleient doesn't! There of course is risk with everything. With fixed annuity products, the biggest risk is the solvency of the company that you purchased the annuity from.

What state are you in JMO Fan?

 

[JMO Fan]

SEC & States

...what they are saying is the risk is about the "Excess Rate" above that, that is guaranteed under the Guaranteed Rate. In other words since there is an unknown on the excess ... the excess rate that may or may not materialize.

It's because it's not fixed, not because people don't understand. That's the gist of the SEC position. Supreme court (c. 1987) told them they were right.

Plus most (if not all) States refer to "Seperate Account" as found in the VA before they change destination of the product as a Security.

States don't tell companies to put EIAs in separate accounts. Separate accounts are a product of securities laws (SEC), forced by the US Supreme Court in Otto v. VALIC. Early EIAs were in separate accounts, which made the SEC think (c.1997) that all EIAs were being registered & sold as securities.
(This I learned when I called & asked them in 1997, not because of any public pronouncements.)

This is nothing more then a turf war between the Federal SEC and State DOI's.

This is far from true. For the past 20 years, the SEC has continually backed away. It appears to me this began when a federal court ruling said in effect that everything outside the safe harbor is a security. (I thought they were wrong, and I suspect the SEC didn't want this, but the court opinion was upheld when it went to the US Supreme Court.)

The SEC doesn't have the desire, staff or budget to want this fight. They're being pushed into this by consumer complaints (especially from rich 'seniors'). NASD statements are the 'shot across the bow.'