Two concepts are in play today that almost seem incompatible.

One is the growing trend to impose heightened “suitability” requirements before deferred annuities can be sold to senior citizens–to protect the seniors.

The other is the change in paradigm that has taken place among senior citizens, with seniors enjoying more active lifestyles than was ever the case with their parents and grandparents.

But if seniors are more active, more aware, and more in control of their own destinies, why do they need greater protection from themselves?

We conclude that there is merit in the old adage, “If it ain’t broke, don’t fix it!”

Legislators, regulators and self-appointed consumer advocates seem determined to protect seniors from themselves when it comes to financial planning. There seems to be some idea that when people reach a certain age (there is always controversy over the exact definition of a “senior citizen”), they become suddenly incompetent to handle their affairs and need to be protected from themselves.

Almost every day, there is a news article detailing how some regulator or other pundit hopes to protect seniors from their own folly by placing additional burdens both on their ability to make decisions and on those people attempting to provide them financial advice and financial products.

Presently, there almost seems to be a trend among certain regulators (and not a few state attorneys general) to hold that no sale of an annuity to a senior (however that term is defined) is “suitable.”

This attitude is condescending and insulting to the people who have provided the economic knowledge and capability to power this nation to the economic powerhouse it has become.

To take the position that at some arbitrary age, these people somehow become incapable of managing their own affairs and need the government to determine what is in their best interests demeans these important members of society.

That said, we have no problem with suitability standards for everyone.

The Securities and Exchange Commission and the National Association of Securities Dealers have been wrestling with new suitability standards for deferred variable annuities for over 3 years. It is likely that new standards will be in place in the immediate future, perhaps before this article is printed.

State insurance regulators are likewise in the process of imposing suitability standards on non-variable annuities. (There seems to be a jurisdictional battle going on between federal and state regulators over who should determine standards for indexed annuities.)

A number of experts have disagreed with the determination by the NASD and the SEC that variable annuities need a different suitability standard than that applied to all sales of securities.

One of the keys to suitability determinations for deferred annuities–variable or fixed–is determining likely future liquidity needs, regardless of the purchaser’s age. This is so whether the sale occurs under existing rules or under what is likely to be imposed with the new rules.

A recent review of a series of government inquiries into sales of deferred annuities to seniors is quite revealing.

The inquiries reflect a “knee-jerk” reaction of government officials to the effect that any sale of a deferred annuity to a senior is unsuitable–particularly if it involves the tax-free exchange of one annuity for another.

A more in-depth investigation of the facts indicates most of these seniors knew exactly what they were doing and had legitimate motivations for the actions taken.

What’s more, they do not need to be protected from themselves, except by applicability of suitability standards that would apply to anyone, regardless of age.

Any suitability screening process for any purchaser of a deferred annuity should include a serious look at the purchaser’s likely liquidity needs over the period while surrender penalties apply.

This does not mean that the suitability screener should substitute his or her judgment for that of the consumer. People who have not been determined to be incompetent have the right to make their own decisions, even stupid decisions!

It’s fair to say that most American adults are suspicious of the majority of government decisions on any subject and do not think it is appropriate to delegate to the government any more responsibility for managing one’s personal affairs than is already the case.

The annuity industry, through industry trade associations, has invested substantial amounts of time and money to create intelligently crafted suitability standards for deferred annuities. These standards include screening purchases of deferred annuities to consider likely future liquidity needs, taking into consideration all relevant factors, including the age of the purchaser.

This is not to single out seniors, but merely to recognize that all ages of annuity purchasers have different liquidity needs directly related to their stage of life, family conditions, health, education needs, etc.

Let these standards have a chance to work. Do not continue insulting the very people who made this nation what it is by attempting to protect them from themselves.