Annuities dominated much of the discussion today at a Senate Committee on Aging hearing on protecting seniors from investment fraud.

The hearing as a whole, which was organized by the Senate Committee on Aging, examined methods con artists use to persuade older Americans to invest in a wide range of fraudulent investments, such as fake promissory notes and fake real estate investment programs. A victim and convicted con artist who spoke talked about schemes that had no relationship to insurance or annuities.

But the 3 securities regulators who testified at the hearing all devoted about 10% to 20% of their written testimony emphasizing the need to keep seniors from buying unsuitable annuities.

Some financial services sales representatives are luring seniors to seminars with free meals, then pitching equity-indexed annuities and variable annuities as low-risk or no-risk products, without adequately explaining possible risks, said Patricia Struck, who is Wisconsin securities division administrator and president of the North American Securities Administrators Association Inc., Washington.

“Equity-indexed annuities are complex insurance products with high commissions and long holding periods…which make them unsuitable for many older investors,” Struck said, according to a written version of her remarks.

Similarly, although variable annuities “are legitimate and suitable investments for some,” regulators believe that many investors are not being told about high surrender charges for early withdrawals, the potential of exposure to market risk, and the “steep sales commissions” agents earn when they move investors into variable annuities, Struck said.

Struck also attacked “senior specialist” designation programs that provide little but limited sales training.

Elisse Walter, executive vice president for regulatory policy and oversight at the National Association of Securities Dealers, Washington, also talked in her written testimony about concerns about “free lunch” seminars, and about NASD efforts to strengthen regulation of the equity-indexed annuity market and other annuity markets.

Susan Ferris Wyderko, director of the Office of Investor Education and Assistance at the U.S. Securities and Exchange Commission, told senators in her written testimony about hearing “anecdotes from conservative investors and seniors who’ve been told that they ‘can’t lose money’ investing in equity-indexed annuities.”

“Investors can lose money buying an equity-indexed annuity, especially if the investor needs to cancel the annuity early,” Wyderko said, according to the written version of her remarks.

Like Sturck and Walter, Wyderko complained about sales of unsuitable annuities through free-lunch seminars.

The SEC plans to work with the NASD and the state of Florida to conduct examinations of the broker-dealers and advisors that offer the seminars, Wyderko said.

The American Council of Life Insurers, Washington, responded to the testimony with a statement emphasizing the importance of annuities in saving for retirement and designing retirement income streams.

“The life insurance industry takes very seriously any allegations of inappropriate sales of annuities, especially to seniors,” the ACLI says in the statement. “Life insurers are committed to the highest possible sales standards and work vigorously to ensure that consumers considering annuities are treated fairly and honestly throughout the sales process. Any person found to be engaging in inappropriate sales should be punished and put out of business.”

The ACLI says it is demonstrating its commitment to high sales standards by supporting efforts to expand the annuity sales suitability model regulation developed by the National Association of Insurance Commissioners, Kansas City, Mo., to apply to all consumers. The model now applies only to seniors.

Links to copies of the hearing witnesses’ remarks are on the Web at Document Link