SEC: Investor Alert on Indexed Annuities (clueless)

[DHK]

SEC.gov | Investor Bulletin: Indexed Annuities

Just because it came from the government, doesn't mean that it's accurate.

 

[Golfnut2112]

What part is inaccurate?

 

[DHK]

Losses. Some indexed annuities specify that investors may lose money if the market index goes down in value. If they do, the indexed annuity may offer some limited protection against that risk. Some common protections include:

Floor. This protection limits investor exposure to a set percentage of potential loss. For example, if the floor is 10% and the index decreases by 12%, you would only lose 10% of your annuity contract value, before considering any adjustments imposed by contract terms such as surrender charges.

Buffer or Shield. This protection offers a set percentage of loss that the insurance company is willing to absorb before deducting value from the indexed annuity. For example, if the shield is 10% and the index decreases 12%, you would only lose 2% of your annuity contract value, before considering any adjustments imposed by contract terms such as surrender charges.

Can you lose money buying an indexed annuity?
You can lose money buying an indexed annuity. Read your contract carefully to understand how your annuity works. You can lose money in the following ways:
[...]
Market index drop. You may lose money in some indexed annuities if the market index goes down (explained above).

Sheryl Moore says that this "investor alert" describes more of a structured annuity rather than an indexed annuity. I don't know much about structured annuities, but for indexed annuities, you can't lose money purely due to market losses.

 

[Tahoe Ray]

Sheryl Moore says that this "investor alert" describes more of a structured annuity rather than an indexed annuity. I don't know much about structured annuities, but for indexed annuities, you can't lose money purely due to market losses.

You have to be securities licensed to sell-structured/hybrid indexed/insert fancy marketing name here-annuities too, for that exact reason.

This is why I'm guessing that the SEC is commenting on them. There is a difference between a fixed indexed annuity and what a lot if the industry is calling an indexed annuity which can include both types.

 

[Allen Trent]

What part is inaccurate?

Isnt the definition of floor inaccurate? It gives the impression floor of 10% could cause a loss of 10% to the cash value if the market dropped 12%. If most have a floor of zero, wouldn't there be no chance at a market loss. Now, if some of the products are including index choices that include Multiplier index segments that carry a % fee of 5 or 10%, then the client could take an actual crediting loss in down or flat years.

Maybe this was triggered by the AG49 discussion going on about IUL illustrations & the author confused the issue or failed to clearly state it.

 

[Tahoe Ray]

Isnt the definition of floor inaccurate? It gives the impression floor of 10% could cause a loss of 10% to the cash value if the market dropped 12%. If most have a floor of zero, wouldn't there be no chance at a market loss. Now, if some of the products are including index choices that include Multiplier index segments that carry a % fee of 5 or 10%, then the client could take an actual crediting loss in down or flat years.

Maybe this was triggered by the AG49 discussion going on about IUL illustrations & the author confused the issue or failed to clearly state it.

It's talking about hybrid index products which are considered variable and uses that exact terminology (floors, buffers, etc.).

A lot of company wholesalers are calling them indexed (which they are) but they certainly aren't FIAs (FIXED).

 

[Allen Trent]

It's talking about hybrid index products which are considered variable and uses that exact terminology (floors, buffers, etc.).

A lot of company wholesalers are calling them indexed (which they are) but they certainly aren't FIAs (FIXED).

thank you. then, the SEC alert is poorly written to not call that distinction out or define that FIA are different

 

[IsaacA]

Ooof this is something.
Fixed Index Annuities are not these structured products.
Those structured products are considered VIAs or Hybrids.

 

[DHK]

Just got off the phone with a journalist for InvestmentNews about this bulletin because I had posted on Sheryl Moore's LinkedIn post. Gave my opinion that either the bulletin is mis-titled OR it lacks the clarity required to give consumers a clear distinction between indexed annuities and these other structured annuities. And if agents are getting this wrong, and if registered reps are getting this wrong, and if the regulators are getting this wrong... what hope does the consumer have in understanding these things? (I also gave my opinion on their recent article about insurance agents "breaking the law" for 401(k) balances to insurance products.)

 

[DHK]

https://www.investmentnews.com/article/20190816/FREE/190819940/sec-draws-ire-with-indexed-annuity-misstep