How and Why is FINRA Still Misleading

[URDRWHO]

This is about FINRA and not really whether you like or don't like the FIA.

I spent many, many years as a Securities 7 guy. What I find confusing is that FINRA can milead in ways that if I had done as an S7 guy, would have placed me in hot waters.

What I am talking about is their website. On their website about EIA (yes they still call them EIA) they have misleading information.

What they are reciting in their text is how the minimum guaranteed interest is paid. But the FINRA text misleads and makes it sound like the equation for guaranteeing principal. Surrender charges aside, how many insurance companies will not give you 100% of principal back after surrender charges? FINRA says "many".

Here is the FINRA site and text in question.

FINRA - Investor Alert - Equity-Indexed Annuities—A Complex Choice

"Is it possible to lose money in an EIA? Yes. Many insurance companies only guarantee that you'll receive 90% of the premiums you paid, plus at least 3% interest. Therefore, if you don't receive any index-linked interest, you could lose money on your investment."

IF they were addressing single premium annuities, they darn well should have said it.

Personally such misleading information from a regulatory organization, could be actionable.

 

[xrac]

Were the tables turned, both the SEC and Finra would be banned from the industry and likely prosecuted to the full extent of the law. Instead, they get more funding and hire more people to do what they should have been doing all along. __Clint Struthers

InvestmentNews.Com.
​

 

[retread]

Here is the FINRA site and text in question.

FINRA - Investor Alert - Equity-Indexed Annuities—A Complex Choice

I dunno... the first sentence "Sales of equity-indexed annuities (EIAs) have grown considerably in recent years" is tempered with the end of the article where it is shown the last update was 4/22/2008. I don't think this is currently the situation.........

But I agree with you, that every discussion I have read about FIAs is that there is "no down-side risk". As I understand it, this is because the insurance carrier guarantees a minimum rate, and hence it is called a fixed annuity. No market risk, no losses.

By a stretch of the imagination one could pose that IF the client's indexed funds were invested in the market and IF it provided more gain than the cap, THEN that difference would have been lost. BUT... that that' not how they work. Anyway, one can't have their cake and eat it, too. Either buy a fixed annuity or a variable.

But an "Equity Indexed Annuity" is a fixed annuity... and you won't find a discussion of them on the SEC website because the SEC recognizes that money is not "at risk" with EIAs (FIAs). All this will change, of course, if rule 151A is adopted.

>>>> I am only licensed as L&H... no series 6/63... so cut me a little slack here, OK?

 

[HarryRenard]

This is about FINRA and not really whether you like or don't like the FIA.

I spent many, many years as a Securities 7 guy. What I find confusing is that FINRA can milead in ways that if I had done as an S7 guy, would have placed me in hot waters.

What I am talking about is their website. On their website about EIA (yes they still call them EIA) they have misleading information.

What they are reciting in their text is how the minimum guaranteed interest is paid. But the FINRA text misleads and makes it sound like the equation for guaranteeing principal. Surrender charges aside, how many insurance companies will not give you 100% of principal back after surrender charges? FINRA says "many".

Here is the FINRA site and text in question.

FINRA - Investor Alert - Equity-Indexed Annuities—A Complex Choice

"Is it possible to lose money in an EIA? Yes. Many insurance companies only guarantee that you'll receive 90% of the premiums you paid, plus at least 3% interest. Therefore, if you don't receive any index-linked interest, you could lose money on your investment."

IF they were addressing single premium annuities, they darn well should have said it.

Personally such misleading information from a regulatory organization, could be actionable.

I personally dont think that is misleading.

And what does single premium annuities have to do with the price of tea in china.

On what planet do you not count surrender charges or MVA's as a loss.

Personally I think it you that is confused not finra.

 

[0b1kanobee]

On what planet do you not count surrender charges or MVA's as a loss.

Well Harry by that reasoning wouldn't a CD be classified as a security? If you take it out before the time frame you committed the monies to, you take a hit. Seems to me that a CD then would qualify as a security, no. I haven't looked at a CD lately but I'm assuming they have surrender fees similar to a fixed annuity.

The surrender fees are there for protection similar to people making a run on the bank, well at least one reason. It is for protection of the consumer as well as the company. The monies are invested in long-term investments.

Funny thing, I just rolled a 401k into an ING opporatunities 10 (spelling) and the guy was happy as a clam that he couldn't touch the money (without penalty) for 10 years. Worst case scenario he will have 145k in that account in 10 years providing he doesn't incur a surrender charge and just lets it sit.

 

[HarryRenard]

All the CD's Ive seen you loose the a portion of the interest not your principal.

Of course your principal or your gains are not at risk to the market but there are other factors involved and that was my point with respect to his interpretation of the finra article, I just didnt agree with his opinion.
I didnt really have a problem with what finra stated, made sense to me.

 

[0b1kanobee]

Yeah harry I didn't really read it, I'm just against this rule 151A myself and not just because I offer annuities. Here is a neat article about CD's and you can lose money on your principal from what it reads.

FROM THE ARTICLE:

Research Any Penalties for Early Withdrawal – Deposit brokers often tout the fact that their CDs have no penalty for early withdrawal. While technically true, these claims can be misleading. Be sure to find out how much you'll have to pay if you cash in your CD before maturity and whether you risk losing any portion of your PRINCIPAL. If you are the sole owner of a brokered CD, you may be able to pay an early withdrawal penalty to the bank that issued the CD to get your money back. But if you share the CD with other customers, your broker will have to find a buyer for your portion. If interest rates have fallen since you purchased your CD and the bank hasn't called it, your broker may be able to sell your portion for a profit. But if interest rates have risen, there may be less demand for your lower-yielding CD. That means you would have to sell the CD at a discount and lose some of your original deposit –despite no "penalty" for early withdrawal.

CDs - Certificates of Deposit

 

[HarryRenard]

Yeah harry I didn't really read it, I'm just against this rule 151A myself and not just because I offer annuities. Here is a neat article about CD's and you can lose money on your principal from what it reads.

FROM THE ARTICLE:

Research Any Penalties for Early Withdrawal – Deposit brokers often tout the fact that their CDs have no penalty for early withdrawal. While technically true, these claims can be misleading. Be sure to find out how much you'll have to pay if you cash in your CD before maturity and whether you risk losing any portion of your PRINCIPAL. If you are the sole owner of a brokered CD, you may be able to pay an early withdrawal penalty to the bank that issued the CD to get your money back. But if you share the CD with other customers, your broker will have to find a buyer for your portion. If interest rates have fallen since you purchased your CD and the bank hasn't called it, your broker may be able to sell your portion for a profit. But if interest rates have risen, there may be less demand for your lower-yielding CD. That means you would have to sell the CD at a discount and lose some of your original deposit –despite no "penalty" for early withdrawal.

CDs - Certificates of Deposit

I am not gonna debate cd's with you, but I think that article is on some kind of equity based or a callable cd NOT the typical cd at the bank that granny has. Granny's CD at the bank is NOT ever gonna loose principal, typically the penalty is 6 months interest.

It seems to me that you didnt read this article either.
Please before writing a response read the articles then read them again.

 

[0b1kanobee]

Harry I wasn't trying to get into a debate with you, sorry if I came off that way. I am just under the assumption that regardless if it is Granny's CD or not if you put your money in one and say it is a 1 year CD and you take it out 15 days later you are going to lose principal not just interest.
On some of the more complicated CD's we could be looking at even greater loss due to the upside pottential of them.

And yes I should of read the article. I just view surrender fees as more of a breach of contract than a loss of investment. Without surrender fees I would view annuities as much more volitile in the large scope and the fact that they do have surrender fees makes them less risky because the insurance company has a better handle on them.

Also wanted to make sure when I'm comparing cd's against annuities I'm providing accurate information is all.

 

[Franz Kafka]

I am just under the assumption that regardless if it is Granny's CD or not if you put your money in one and say it is a 1 year CD and you take it out 15 days later you are going to lose principal not just interest.

Your assumption is correct. Principal will be invaded to pay the penalty equal to interest CD would have earned. In regards to surrender charges on FIA, it's a misnomer. It's a contingent deferred sales charge. When a registered rep sells B shares they get a lumpsum commission. Investment company recupes this marketing cost annually from their fees during the initial years. If the investor makes early distribution they pay the sales charge (dealer commission) according to number of years their money was invested. The same happens with cash value life insurance (including WL). Don't worry about FINRA. At the current rate of reps leaving them to become RIAs they will soon collapse on their own. Just don't go get security licensed and prolong their demise.