Insurance industry groups are criticizing the Securities and Exchange Commission for closing the comment period for a proposal that would impose federal regulation on indexed annuities.
Leaders of NAFA, Milwaukee, sent the letter as criticism of the proposal was pouring in from other individuals and entities,
Organizations sending the SEC comment letters opposing the proposal and the Sept. 10 comment cut-off include groups such as the National Association of Insurance and Financial Advisors, Falls Church, Va.; Association for Advanced Life Underwriting, Falls Church; and the National Association for Fixed Annuities, Milwaukee.
The proposal would create a new regulation, Rule 151A, that would classify indexed annuities as securities.
Members of industry groups, and individual life agents representing only themselves, have been sending the SEC letters condemning the proposal after since the SEC announced it in June.
This week, at the NAIFA annual meeting in San Diego, group leaders enlisted members in an effort to write and send many more letters criticizing the proposal.
NAFA Chairman Malott Nyhart asks in the AALU letter whether the SEC and the Financial Industry Regulatory Authority, Washington, “really intended to encompass such a broad array of traditional annuity products within the rule.”
“In light of the significant legal and economic policy issues at stake, we are extremely disappointed that the SEC chose to seek to move this rule to adoption with only a very narrow window for comment,” Nyhart writes.
The new “proposal departs significantly from the SEC’s 1997 statement on fixed index insurance products,” Nyhart writes.
Proposed Rule 151A appears to raise questions about the status of any life insurance product with a cash value interest crediting mechanism similar to the crediting mechanism used in deferred annuities, Nyhart writes.
“By not allowing a reasonable comment period, the SEC apparently discounted the reasoned views of numerous members of Congress, small businesspersons, and state regulatory officials who requested an extension,” Nyhart writes.
An extension of the comment period would have permitted the life industry to conduct economic studies of cost-benefit factors in the absence of rigorous SEC analysis of whether the proposed rule would promote the objectives Congress has set for the SEC, Nyhart writes.
NAIFA leaders and members are noting in their letters that the SEC would force many life insurance agents to get securities licenses, and agents who have securities licenses but work without running sales through a broker-dealer to come under the supervision of a broker-dealer.
But a few commenters who say they are life insurance agents have written to the SEC to support proposed Rule 151A.
“I am a member of NAIFA Wisconsin, and I do not agree with their position,” writtes Allan Hibbard, who identifies himself as a registered investment advisor. “Most indexed annuities are sold by life insurance agents are not securities licensed and are sold improperly. Indexed annuities should be treated as securities and force the agents to get education so they stop selling alot of the crap annuities they sell out there.”
Russell Hall, a registered principal who says he has held securities licenses and a Kansas insurance insurance license for about 24 years, also has written to support the proposed rule.
“In all my years in this business, I have never encountered a more misrepresented, client-unfriendly product than the Equity Indexed Annuity,” Hall writes. “For obvious reasons, I have studied dozens of different versions of this product, hoping to find one that I could justify recommending to my clients. I haven’t yet found it. Meanwhile, insurance agents have been ‘suckering’ people (mostly seniors) into committing life-savings to these annuities. I’ve had more than one agent tell me that I was stupid to put clients’ monies into positions which only paid 1 to 5% commission, when I could be making 12, 15% or more using an Indexed Annuity. (Never mind that the surrender charges stretch from 9 to 15 years) Even in the terrible bear market of 2000 – 2002, these people would have been MUCH better off in Bank CDs or Money Market Funds. I hope indexed annuities get regulated out of existance.”