SEC Updates Indexed Annuity Investor Bulletin

The U.S. Securities and Exchange Commission’s Office of Investor Education and Advocacy has updated the SEC’s Indexed Annuities investor bulletin.

Investors bulletins are not official batches of SEC guidance, but they may reflect the kinds of questions SEC officials are getting about a topic.

Resources

• A copy of the updated SEC indexed annuity bulletin is available here.
• An article about a House committee bill report that mentions the variable indexed annuity registration process is available here.

The investor education first posted the indexed annuities bulletin in August 2019.

Words

The SEC spent years trying to get the authority to regulate all indexed annuities as securities, the way it regulates ordinary variable annuities and variable life products as securities.

Congress blocked the SEC from automatically regulating non-variable annuities, which protect the holder against loss of account value, as securities. Instead, life insurers can file indexed annuities with account value guarantees as non-variable annuity products.

Issuers originally called those products equity indexed annuities. Once the conflict with the SEC cropped up, issuers began calling contracts with account value guarantees fixed indexed annuities.

Life insurers still register some indexed annuities with the SEC, as securities. By registering an indexed annuity with the SEC, a life insurer gives itself the ability to limit itself to protecting the holder against just some loss of account value, or do without value guarantees altogether.

The Insured Retirement Institute, the Secure Retirement Institute and some other industry organizations have been calling indexed annuities that are registered with the SEC “registered index-linked annuities,” or RILAs.

The Bulletin Update

A comparison of the bulletin update with an older version stored on Archive.org reveals many routine formatting changes.

Some changes may underscore the possibility that investors need to know what happens when the investment indexed linked to indexed annuities fall, and what the costs are.

The SEC staff, for example, deleted this passage:

Depending on the circumstances, an indexed annuity may or may not be a security. If an indexed annuity is a security, it is regulated by the SEC. All indexed annuities are also subject to state insurance regulation. If an indexed annuity is not a security, it will not be regulated by the SEC, but would still be subject to state insurance laws.

The SEC staff replaced that passage with this one:

Not all indexed annuities are regulated by the SEC. The SEC regulates only indexed annuities that are securities…. These indexed annuities can expose investors to investment losses. If the indexed annuity is a security, generally a prospectus will be delivered to you. Before purchasing an indexed annuity, you should ask your financial professional what type of indexed annuity it is, what risks are involved, and about any expenses such as commissions and other fees you will have to pay. You should consider asking the question, “How much of the money I invest is going to work for me and how much is going to fees and expenses?”

The staff has also added this advice:

Before purchasing an indexed annuity, you should understand how this return is calculated and the extent to which price declines in the index can affect the performance of the indexed annuity.

— Read 5 Notes About the SEC’s New Indexed Annuity Bulletin, on ThinkAdvisor.

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