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July 03, 2008 at 10:50 AM
Members of the public are submitting a flurry of reactions to efforts by the U.S. Securities and Exchange Commission to define indexed annuities as securities.
Comments on the draft proposal, which was approved for release June 25, are not due until Sept. 10, but, at press time, the SEC already had posted 37 comments on its Web site.
Members of the staff say they want to define indexed annuities as securities because of concerns that sales representatives who are not registered securities representatives are explaining the products to older consumers poorly and possibly exposing the buyers to risks that the consumers do not understand.
Insurers and state insurance regulators have objected, contending that the insurers selling the contracts assume responsibility for investment risk, preventing holders who follow contract rules from losing principal or seeing returns fall below a guaranteed rate.
Some members of the public who have commented on the SEC proposal say they support it.
Robert Ow, a registered principal at securities dealer, has written to endorse the proposal.
“Unlike many stock brokers in the industry, I come from an insurance background and have known many people in the life insurance/annuity business,” Ow writes. “In my 27 years of experience I have seen several registered representatives drop their registration but continue as an insurance agent. Without exception, these agents would take advantage of their clients gullibility and sell them ‘garbage annuity contracts that are inappropriate under any circumstance.”
Some members of the public have written to oppose the indexed annuity proposal.
Robert Eldridge Jr. of Producers Choice West Inc., Las Vegas, notes that his clients have lost no money despite a 20% drop in the stock market since October 2007.
“I think this is personally about money,” Eldridge writes. “I believe that securities firms are concerned that money is leaving wall street for insurance companies.”
If the SEC does classify indexed annuities as securities, “all insurance agents who previously offered index annuities before they became classified as a security would be forced to acquire a security license and be subject to the additional high cost of errors and omissions insurance specific to securities along with very high securities licensing fees relevant to the registration with broker dealer firms,” according to Eric Rambis of Kenosha, Wis.
Several other commenters also have written about concerns about competition in financial services distribution.
“It appears the only possible explanation for the ruling is that the SEC is bowing to the shrill cries from the brokerage world over loss of ‘market-share’ to [investment advisors],” writes Charles David Gray, a Henderson, Texas, insurance agency principal.
“I believe that your recommended regulations change seeks to stop the bleeding from lost brokerage accounts,” writes Richard Mellor, a Castro Valley, Calif., life insurance agent.
