Consumers should understand that they can lose money if they invest in indexed annuities, a state regulator says.

Alabama Securities Commission Director Joseph Borg made that argument here at an annuity roundtable sponsored by the National Association of Securities Dealers Inc., Washington, and the Minnesota Department of Commerce.

Many speakers emphasized the importance of transparency and agent training, but Berg was more forceful than some about indexed annuity risk.

Insurers usually peg indexed annuity returns to changes in stock market indices or other benchmarks, then guarantee holders who meet contract terms a minimum annual return.

Indexed annuity holders face what appears to be a very small risk that a devastating market downturn could hurt the insurers backing the annuities.

Indexed annuity holders also face a much larger risk that they might incur a variety of penalties if they have to withdraw annuity assets earlier than expected.

“The product is what it is,” Berg said, “but the public doesn’t understand it, and God knows if the agents understand it.”

Thomas Streiff director of fund and annuity solutions at UBS Financial Services Inc., New York, argued that indexed annuities are only slightly less safe than other fixed annuities, but he added that indexed annuity sellers should have indexed annuity training.

“A well-trained distribution force and a well-educated client is indeed a requirement,” Streiff said.

But Wendy Carlson, chief financial officer at American Equity Investment Life Holding Company, West Des Moines, Iowa, objected to the idea that an indexed annuity is especially complicated.

“It’s really not that difficult to follow,” Carlson said.

Instead of trying to make consumers aware of every nuance and detail of the annuities, sellers should focus on what consumers can expect as an end result, said Clifford Kirsch, a senior corporate counsel at an insurance unity of Prudential Financial Inc., Newark, N.J.

Kirsch brought up the idea of letting indexed annuity sellers give consumers an illustration of a product’s past performance.

Mark Mackey, president of the National Association for Variable Annuities, Reston, Va., said illustrations of past performance can cause problems, because consumers often assume that past results will continue into the future.

Jim Poolman, North Dakota insurance commissioner and chair of the Life and Annuities Committee of the National Association of Insurance Commissioners, Kansas City, Mo., said the NAIC has developed a buyers guide for annuities.

“Unfortunately, like a prospectus for a mutual fund, no one reads [it],” Poolman said.

Indexed annuities are likely to continue developing, and to become increasingly complex, said Brian Atchinson, president of the Insurance Marketplace Standards Association, Washington.

The increasing complexity may be a necessary evil, Atchinson said.

“People appreciate better products,” Atchinson said. “Complexity is unfortunately a byproduct of that.”