October 20, 2008
Dear SEC,
I am writing in regards to Rule 151A. This is a very important issue, I realize. The question is: are Indexed Annuities Securities or Insurance.
In my experience as a Financial Advisor each time I have come across an Index Annuity they have been positioned as an Investment. The ability to alledgedly participate in the market, with no possibility of loss. The problem is not only with the annuities, but the people who sell them. I have had numerous incidents of people in my office who were sold an Indexed Annuity who were not given the full ramifications of owning these investments. Not to mention the fact that they can't get their money out of these investments without paying a penalty as high as 21% in some cases. I have been solicited by insurance companies to sell these things and they are offering 12 and 15% sommissions to sell these. That is why so many people are upset, because they are ripping cutomers off and they may have to be licensed to rip them off in the future. By being licensed as a financial representative they would have a fiduciary responsibility to do what is right for the customer, which would render Indexed Annuities less applicable.
I sell variable and fixed annuity products, so I see a place for annuity products in the financial world. However, I believe clients should understand what they own. The clients I have seen who own Indexed Annuities do not understand the investments and it is likely do to the fact that most agents do not understand Indexed Annuities (they just know that they pay well).
Many people's livelihood may change because of the ramifications of this vote. However, I have seen many people who can't get to all of their money either for another 15 or more years, without paying a large surrender charge. I think all agents who sell these investments should be required to be Series 6 or Series 7 licensed. This is not just an insurance product it is also a market product. I had to work hard to be Series 7 and Series 66 licensed and now I am obligated to do what is right for each person who walks through my door. Insurance agents who tell people to participate in the market with a confusing "insurance product" should be held to the same standard as all financial professionals. I am in favor of Indexed Annuities being treated as Securities and believe Rule 151A should be adopted.
Eric Reinhart