It is more than perplexing that regulators are spending an inordinate amount of time trying to find fault with fixed indexed annuities.
Due to the downside guarantees, these products have saved clients from suffering billions of dollars in market losses. Yet when advisors write fixed indexed annuities in the current regulatory environment, the implicit message is they should somehow feel guilty for doing so–even though the product offers a principal guarantee, a minimum interest rate guarantee and an income the client cannot outlive.
For the right client, the fixed indexed annuity has been, and still is, an outstanding product. It provides downside protection and upside potential.
Even so, if securities licensed reps want to reposition clients who have been exposed to mutual fund losses by putting them into a fixed index annuity, they’ll need a lot of luck. That’s because any attempt to reposition those assets could be interpreted by regulators as “churning.”
What to do? At the very least, advisors should have such clients sign disclosure forms of the advisor’s own, not just disclosure forms from the financial providers. This includes having them sign a “hold harmless agreement” (see below).
I offer this suggestion as an agent who is doing exactly that. I am not an attorney, but I hired an attorney to draft such a form for the benefit of my business.
The hold harmless approach addresses the exposure the advisor faces due to over-regulation and the resulting compliance requirements. Generally, the problem that gives rise to so much regulation is what the regulators believe to be “agent misrepresentation.” The regulators seem to perceive that the vast majority of injured consumers are alleging agent or broker misrepresentation. Hence, they have spurted out many rules and regulations to correct the perceived problem, and a myriad of compliance requirements have followed.
Complaining about this does no good. The regulations and requirements are already here. But agents and brokers should develop their own response to this complicated situation. That is, they should consider using their own hold harmless agreement with clients.