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January 15, 2006 at 02:00 PM
Boy, oh boy, is Robert Glauber a man on a mission!
For the past few months, the chairman of the National Association of Securities Dealers has been focusing his attention with laser-like intensity on the subject of equity-index annuities and how they should rightfully be under the purview of–guess what?–the NASD.
The biggest seismic jolt on the issue came in August when the NASD issued guidance–the now notorious Notice to Members 05-50. The notice expressed the self-regulatory organization’s concern about the marketing, sales and supervision by NASD member firms of EIAs not registered with the Securities and Exchange Commission.
In effect it said these broker-dealers should treat EIAs as registered securities, even though the SEC has not ruled that they are such.
Until the Notice, EIAs were regulated and overseen by state insurance departments, as unregistered insurance products are and have long been. After the Notice, the chill that went through the broker-dealer and insurance communities opened up a huge amount of doubt and fear in an area that previously had little. Essentially people thought: True, the SEC hasn’t said EIAs are registered products, but the NASD is pushing the idea that we could be liable if we don’t treat them as such, so what should we do?
The chill is obvious in the hit that EIA sales took in the third quarter, at least partially attributable to the publicity generated by the NASD’s maneuvering. It’s also apparent in the just-in-case actions of some broker-dealers who have changed their procedures to be on the safe side of Notice 05-50.
Now, I have no doubt that Glauber and his confreres at the NASD are sincere in their concern about whether consumers are fully understanding a product that NASD deems to be complex and whether the sellers of these products are fully conveying the complexity of the products and any inherent risks.
But I also know that power centers tend to take actions that will aggregate more power to them. And have no doubt about it, NASD is a power center. Why wouldn’t NASD feel it has a right to jurisdiction over EIAs, which have been one of the hottest and fastest-selling new products in the market in the last few years?
