Fixed Indexed Annuities Still Under Attack
You may have heard that SEC Rule 151(a) will be dead if the Finance Reform Bill is signed by President Obama. This is because the Conference Committee bill passed by the joint House-Senate conferees on June 25, 2010 included language proposed by Senator Tom Harkin (D-IA) to leave fixed indexed annuities under state supervision. The Finance Reform Bill also will make the 2010 NAIC Suitability in Annuity Transactions Model Regulation the law in all 50 states.
The fight against fixed indexed annuities is far from being over, however. Here are several articles that appeared in response to the Harkin Amendment:
· Jane Bryant Quinn on CBS Money Watch wrote, Congress Sells Out Seniors: No SEC Regulation for Indexed Annuities (Be sure to read Sheryl J. Moore’s 32-point response to this article)
· FINRA, the Financial Industry Regulatory Authority, posted an Investor Alert about indexed annuities
· Senator Daniel Akaka (D-HI) said in hearings for S.A. 3920, “Deceptive sales practices have been found to be used in these products. An individual in Hawaii pushed equity index annuities to collect high commissions at the expense of senior investors. Those investors least able to effectively evaluate financial products need these federal protections, without question. And they’ve been suffering.” (see full article)
· Kevin Keller, president of the Certified Financial Planner Board of Standards, said, “These are products that are ripe for abuse among the elderly. It’s important for consumers, especially the elderly, to have the protection of the SEC.” (see full article)
· Barbara Roper, director of investor protection at the Consumer Federation of America, in her letter to Congress wrote, “If adopted, this amendment would open a gaping hole in investor protections without any assurance that the insurance regulation relied on in its place is adequate or effective.” (see full article)
· Denise Voigt Crawford, the Texas Securities Commissioner and president of the North American Securities Administrators Association said in her letter to Congress, “It’s a hybrid product, so the questions in play here go beyond just equity-indexed annuities themselves and raise issues concerning who is going to regulate these hybrid instruments on a going forward basis.” (see letter to Congress)
The list of consumer groups and financial professionals who are against indexed annuities is endless. What is their beef? Here is a summary of the issues that I have found after reading numerous articles and following indexed annuities almost from their inception:
· Deceptive and/or high pressure sales practices
· High commissions
· High / long surrender charges
· Lack of disclosure
Most annuity producers and companies who market indexed annuities, especially those who are members of the National Association for Fixed Annuities (NAFA), have already adopted marketing methods and procedures that deal with the above concerns. Passage of the provisions of the 2010 NAIC Suitability in Annuity Transactions Model Regulation opens producers and companies to fines, discipline, and civil action if they cannot prove that they adhered to these higher suitability standards.
In short, assuming the final provisions of the Finance Reform Bill remain intact and the law is signed by President Obama, those involved with the development, distribution, administration, and purchase of fixed indexed annuities finally won after a long fight. This win comes with a price, however. All the players in the fixed indexed annuity industry must strictly follow the provisions of the 2010 NAIC Suitability in Annuity Transactions Model Regulation or the enemies of indexed annuity products will continue their attack with more ferocity than ever before.