To The Editor: (Re: “Reaction Fires Up To NASD Notice on EIAs,” Aug. 15.) Once again the National Association of Securities Dealers is overstepping its authority!
The referenced article states clearly that the SEC did not determine that Equity Index Annuities are securities, even though the NASD wrote to the SEC in 1997 requesting such a declaration.
Herb Perone, an NASD spokesman, according to the article, is quoted as saying, “We don’t have the authority to declare that.” Yet, Mr. Perone said the NASD issued the Notice to ensure that registered firms are supervising the sale of the product in an appropriate way.
Outrageous! Unless the SEC declares EIAs are securities, the NASD has no authority to tell the broker-dealers to supervise the sale of EIAs, let alone how to supervise such sales. As a matter of fact, Mary L. Schapiro, vice chairman of the NASD, during a speech at the NASD Spring Securities Conference in Chicago on May 25, 2005, cautioned broker-dealer firms against erroneously treating EIAs as securities.
EIAs (properly named “Fixed Interest Annuities”) are not securities. There is no risk of investment loss. The only way a client could lose money in a fixed interest annuity is a complete surrender of the contract in less than 4 years (worst case scenario). It seems to me that all securities pose the risk of investment loss. Therefore, EIAs (properly named “Fixed Index Annuities”) are not securities.
Last point. Just because some products have “moving parts” should not open the door for the NASD to claim jurisdiction. A bad precedent. The SEC should step up to the plate and state once and for all–EIAs (properly named “Fixed Index Annuities”) are not securities.
Do you think I’ve made it clear enough?
Peter D. Fischel, CLU
On Doing What’s Right
For The Client
To The Editor:
Doing what’s best for the client.
We read and hear so much stuff from so-called planners that complain about so many features in long term care insurance. Most recent is the cost of plans, how to cut the costs, cheap plans, are they better?
Here is what needs to be encouraged. Put yourself in the client’s shoes and ask yourself what kind of plan would I be happy to have bought, if I need care tomorrow. If the plan is substandard or inadequate, you will not be able to come back to the children and say, “But mom and dad didn’t want to spend that much on their insurance!”
Now it’s true that people of all ages have budgets on what they can spend, but cost cutting should be in the length of the policy, not the quality of the daily benefit. Two to three years of good insurance is better than a lifetime of not getting what they need. But even here, you need to let the client choose and quit telling anyone that two to three years is all you need. You don’t know that.
Everyone who buys any type of insurance wants to see the bill paid. How do you feel when you have a car accident, only to find that the carrier isn’t paying for this or that? How about a trip to the doctor, and despite all those premiums that you see as outrageous (sometimes it is, but often it’s not, i.e., Medicare), they are not going to pay for this or that, or worse yet, you have to cough up an arm and a leg? This simply is not how people view insurance. Most people think that the purpose of insurance is to pay the bill.
So, try to remember the problem, folks, is not the premium, it’s the solution to a very big, expensive problem. Quit selling cheap plans because you think they are too expensive. Let the people choose, but give them something decent to choose. Is that not how you would like to be treated?
Mark C. Leonard, CLTC
He Differs On
To The Editor:
Re: “Advisors Differ on How Much Boomers Should Leverage Debt,” August 22/29.
The advisors quoted in your article pretty much follow the advice given to the public by the popular press that less debt is better and in particular owning your house outright is a desirable goal. For irresponsible individuals who are tempted to borrow to finance consumption, this may be good advice. But for responsible investors, this may be bad advice. What’s missing is a discussion on how mortgage debt acts as an inflation hedge and a hedge against declines in local real estate values.
Rather than increasing risk, mortgage debt can be used as part of a risk-reducing strategy. There is no return on the equity in a home, and by using mortgage debt, you do not forgo any of the gains that may accrue in the local real estate market.
Clients are looking to advisors for value-added advice, and advisors need to challenge conventional wisdom when appropriate.
Michael A. Kirsh, CFP, CLU, AEP
Kirsh Financial Services, Inc.
New York, N.Y.