FINRA and the North American Securities Administrators Association won the index annuity battle and persuaded the SEC to call index annuities securities by saying they would do a better job of determining when an index annuity sale is suitable.
However, instead of setting suitability guidelines for index annuity sales, in a recent press release, the NASAA said “Equity-indexed annuities … have taken an especially heavy toll on our senior citizens for whom they are clearly unsuitable.” According to NASAA, an index annuity sale is never suitable.
Sound bites from securities regulators on why deferred annuities are bad often settle on surrender charges. The whipping boy they used a few years ago was the mythical index annuity product with a 20-year surrender period (that never existed in the first place). It appears it isn’t the length of the surrender charge that truly is the talking point, but merely the fact that a deferred annuity is used.
In a recent Massachusetts securities case, the regulator jumped on the fact that one of the annuities replacing equities had a 10-year “lock-up” and another had a five-year “lock-up”—a pejorative synonym for “surrender period.” A Missouri case pointed out that two of the consumer’s new annuities were currently paying 3.25 percent interest and that the existing equity accounts had “gained over 23 percent in the two years prior to their liquidation.”