With our editor, Daniel Williams, still holding down the fort on the last day of MDRT’s big conference in Toronto, let me, Associate Editor Andy Stonehouse, step in for a moment and get you up to date on today’s flurry of activity related to the possible regulation of equity indexed annuities.
Advisors have been burning up the phone lines today. And that’s because of news that the U.S. Securities and Exchange Commission is considering rulings which would label fixed and equity indexed annuities as registered securities – a move which could drastically change the way many of you do business. Securities licensing might be the norm.
The emphasis at this point, however, is on “considering.” SEC rulings did not, miraculously, change or come into effect overnight – this is Washington, we must remember – but the potential for those previously unlicensed products to suddenly take on a new and much more regulated status is definitely a possibility.
Before everyone goes into panic mode, let’s look at some of the facts – and the timelines involved.
All of the hubbub stems from Wednesday’s SEC hearing, where the commissioners, in a 3-0 vote, proposed a new rule – known as 151A – which would move EIAs into the securities realm.
The new ruling would use two benchmark tests to determine if a financial product is in fact a security, with some arguably vague language at their core:
- “The amounts payable are calculated in whole or in part by reference to a security or a group of securities or an index, and
- “The amounts payable by the insurer are more likely than not to exceed the amounts guaranteed under the contract.”
In news reports on the hearing, SEC chairman Christopher Cox says his motivation for pushing the changes go back to his frequently-made assertions that the products are being inappropriately sold through abusive sales practices.