The insurance industry is always on its toes to guard against the possibility of any insurance product being deemed a security by the Securities and Exchange Commission.
Thats no doubt because they are aware the National Association of Securities Dealers regards virtually everything in the financial world as a security and tends to make a grab for jurisdiction.
Insurance companies have generally adopted guidelines to be used in talking about fixed annuity products. These FA guidelines emphasize the insurance attributes of the annuity vehicles. Examples include: the minimum guarantees and protection of principal from market risk; the long-term nature of the savings instrument; the annuitization options; and the backing of the annuity by the full faith and credit of the insurer.
However, sometimes these guidelines can be a bit overzealous. I have seen more than one insurance company directive telling agents that when talking about FAs, they shouldnt use the words “investment,” “return,” or “gain.”
Oh, please! While I was driving home last night, the announcer on the public radio asked me to make an “investment.” Then, on the front door to my house, I found one of those hanging things suggesting I consider an “investment” in vinyl siding. And when I opened the mail from my daughters college, there was another request for an “investment” in her education.
In addition, my neighbor was bragging last week about the 3% return he was gaining from his “investment” in an 18-month certificate of deposit.
At no time was there any confusion by anyone that these “investments” might be confused with registered securities. These terms have become generic and no consumer is going to confuse a single premium deferred annuity with a call option.