I don't like tromping on ya big dog but I also have a bit of a mission to at least clear up all the misleading info.
People talk of complexity. I ask this, If I sit down and go over the algebraic expressions for the computation of each different crediting method, will that effect the buyers decision?" I really, really doubt it. Number one, I was a math head in school but how many people were not math oriented. Not many people over a certain age can remember how to nest parenthesis in the equation let alone being able to solve the equation? The people may not be able to do the equation but they can understand the idea of monthly average, or return that is based from one point to the next point? When they receive their contract the computations are in it for them to read.
Many, many years ago I had the idea that life insurance buyers needed a full understanding before deciding on which type of policy to buy. I had a presentation that lasted 20 > 30 minutes. Just a few examples of what I preached:
what are pure term rates.
how a temporary annuity due was used in computation of rates.
that level term to 100 was used in the computation of Whole Life.
that level term does indeed have a side fund, its just that the fund rests with the insurance company.
one dollar discounted for one year at X interest is equal to so they know how much the company needs to have on hand at the beginning of the year in order to have on hand at the end of the year to pay for each $1,000 of insurance.
And more and more................
People hated it. All they wanted was to know how much it cost, could they afford it and was it enough insurance. How many of the guying public care about life insurance Cost Indices's, the Net Payment Cost Index, the Surrender Cost Index? They indices's are illustrated but people don't care. The only people that care about such things are the regulators. For a total of 17 years I was involved in securities and I can't remember ever, not once did someone read the entire prospectus. Not even my CPA clients. Some people threw the prospectus in the round file before I left their office. I always gave them one but it made no difference to their buying decisions.
Mr Hansen never gave the percentage of commission when discussing high commissions. Why is that? Well public opinion would be very different if they heard the commission was 8% compared to the term "high commission." If people heard the high commission was really 8% many of the sales people watching the show would think....heck I make more than 8% on a sale. My industrial sales friend works off a 20% profit margin. Using the word "high commission" leaves the percentage amount up to the individual imagination. I read the same "high commission" writing on certain government sites. Yes, it is all to sensationalize. Let me ask, if a Reg Rep is working for a wire house and the market stinks, are we to believe that the brokers just sit there without selling anything. Are we to believe that the sales manager says, the market stinks its ok...you all don't need to make sales. Does anyone really think that is the speech given to the sales force? Do Reg Reps at wire houses have quotas? You bet they do. When I first got my S7 I wasn't sure about going independent or working for a wire house. I remember an interview at a big brokerage in San Francisco (it was in 1985). I was sitting on the 30th floor, a great view of the bay, listening to the person say this sentence: "having a securities license is like having a license to steal." Ok enough for me.....I decided independent BD's was where I wanted to be.
All annuity buyers get the Buyers Guide to Fixed Annuities Prepared by the National Association of Insurance Commissioners, they get their free look period, surrender charges are clearly spelled out in the brochures, the Buyers Guide tells of them and I don't know how much more print you need to give people. What you need is to weed out unethical people and it has yet to be proved that FINRA does a better job than State Departments of Insurance. Actually the SEC isn't always pleased with FINRA: FINRA's Regulatory Mulligan:
SEC Not Amused
Written: July 22, 2008
http://www.brokeandbroker.com/index.php?a=blog&id=66
You talk about investment returns vary. Well isn't that true of Universal Life, Excess Interest Whole Life and Traditional Annuities. Be it an FIA or a UL policy, the returns come out of the general fund. In a UL the non-guaranteed return may be based on what the company makes on their bill / bond investments in a general fund. Am I to assume that because the non-guaranteed return in a UL varies, it is a security?
Is an FIA the magic bullet? No it isn't but it is a good insurance product. Be it insurance or securities, there is no magic bullet. I've owned mutual funds, general securities and once played commodities. The commodities market was so exciting to me that at the beginning of the 1980's I held a series 3 license and worked as a broker. I also own FIA's.
Uou are correct, there are plenty of fingers to point in the securities business. FINRA can't stop it for securities and they won't stop the bad apples in the FIA business. Bad apples will never stop growing. You just catch them and toss them out. All the disclosure in the world won't stop them from growing.
Big Dog wrote:Geeze...talk about being ganged up on...
Agreed that the securities industry has more than it's share of bad apples. There were a couple of broker-dealers that I was affiliated with that had run-ins with the SEC. Those SEC investigations led to much-needed changes within those broker-dealers. And agreed that the NASD has also failed in the past to properly address some of the wrong-doing by broker-dealers. However, the same can be said of state insurance departments.
That being said, the recent expose' by NBC on the abuses in the annuity sales industry pointed to the need for better control. However much you may think that NBC was jaded in their presentation, they still pointed to the loop-holes and abuses that go on.
As indexed annuities share characterists of both fixed and variable annuities (i.e. you can never lose your principle amount, as with a fixed annuity, but the investment returns will vary like a variable), I believe that better disclosure requirements to the consumer are called for. If state insurance departments won't address this, then it seems that federal (SEC) oversight may be warrented.