Some of you may not be aware of the power grab that is currently taking place. The SEC and its non-government arm, FINRA (previously NASD) are attempting to bring more insurance people under their jurisdiction. There is an urban belief that the goal of the SEC & FINRA is to eventually control all insurance business. From the SEC's own writing's the urban belief may not be far fetched.
I'm wading through the SEC comments on their proposed 151A - EIA's as securities. What I find is telling to your future business. Eventually it may be the P&C business.
http://sec.gov/rules/proposed/2008/33-8933.pdf
SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 230 and 240 [Release Nos. 33-8933, 34-58022; File No. S7-14-08] RIN 3235-AK16 INDEXED ANNUITIES AND CERTAIN OTHER INSURANCE CONTRACTS
"What contracts should be covered by the proposed definition? Should the scope of contracts covered be articulated by reference to state law? Should the proposed definition extend to all annuity contracts, or should any annuity contracts be excluded? Should variable annuity contracts be covered by the proposed definition? Should the proposed definition apply to forms of insurance other than annuities, such as life insurance or health insurance?"
In the above paragraph, if it isn't in the minds of someone, why would they even mention life insurance and health.
Back in 1997 the American Academy of Actuaries gave a response to the Securities and Exchange Commission about index annuities.
January 5, 1998
http://www.sec.gov/rules/concept/s72297/any22972.txt
"Executive Summary
EIIPs are best characterized as ordinary insurance products with a new way of calculating non-guarantied elements.
Since most EIIPs are designed to be general account products, the investment risk for most EIIPs is assumed
primarily by the insurer. The analysis of disintermediation risk shows that EIIPs are placing more risk on insurers than traditional insurance products. It is clear that EIIPs dramatically reduce the investment risk retained by the contract owner relative to variable contracts. Variable contracts have no guarantied cash values and follow the vagaries of the
market on a daily basis and can lose substantial amounts of a contract owner's principal. EIIP owners have guaranties protecting their principal and interest earnings, and can only receive additional positive credits from the equity linked benefits provided under the terms of their contracts. A major risk component of equity investing, a negative return, is eliminated under an EIIP."
The American Academy of Actuaries showed the SEC that a major risk component of equity investing, a negative return, is eliminated under an Index Annuity. Still the SEC marches ahead with their thoughts that individuals who purchase indexed annuities are exposed to a significant investment risk.
This was not an issue with FINRA or the SEC until the Wall street credit meltdown and the stock market started to see money moving out of equities. Call me cynical but I guess there is a reason the big wirehouses pay lobbyists big money.
I was a Reg. Rep of 15 years and paid a $500 a year fee to the NASD be a member. The funny thing was that I had no choice about it. There was one SRO for me and that was the NASD. I don't want to revisit those days with FINRA.
The SEC and insurance business
Moderators: Josh, independent guy
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mica.cooper
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Re: The SEC and insurance business
I don't think this is a surprise to anyone.
The big dog companies want to grease the palms of one set of legislators and lobbyists as opposed to 50. Its easier to control the marketplace, get filings, etc in place, and thwart state controls that are an extension of the will of the people. Anyone who keeps up knows that the lobbyists are pushing for federal control of the insurance marketplace...and we all know how well that would work.
MC
The big dog companies want to grease the palms of one set of legislators and lobbyists as opposed to 50. Its easier to control the marketplace, get filings, etc in place, and thwart state controls that are an extension of the will of the people. Anyone who keeps up knows that the lobbyists are pushing for federal control of the insurance marketplace...and we all know how well that would work.
MC
Re: The SEC and insurance business
Etimer & MC make some good points. I think, however, that the EIA's are under the SEC 's microscope because of the way they are marketed...
Many agents make statements like "you get a stock-market type of return... with no risk to your investment!" Then a discussion is made about the history of the stock market, what the client might expect in the future... all by a person that is not securities licensed! This is their (SEC/FINRA) primary reason to regulate EIA's. They feel the clients, many times senior citizens, can be easily misled. Under the SEC there would be more "teeth" in handlinng these issues and regulating the salesforce.
Personally, I've had a securities ticket since the mid 80's so I've never offered an EIA to a client. The Principal protection rider on most VA's works to protect the initial basis, so I've never seen the need to sell EIA's. That said, there is certainly a place for the product in today's financial world. At stake are the credentials of those selling them, and along with the registration of the product, the design will change and the commissions will change dramatically, too. But that's a different thread...
Swymmer
Many agents make statements like "you get a stock-market type of return... with no risk to your investment!" Then a discussion is made about the history of the stock market, what the client might expect in the future... all by a person that is not securities licensed! This is their (SEC/FINRA) primary reason to regulate EIA's. They feel the clients, many times senior citizens, can be easily misled. Under the SEC there would be more "teeth" in handlinng these issues and regulating the salesforce.
Personally, I've had a securities ticket since the mid 80's so I've never offered an EIA to a client. The Principal protection rider on most VA's works to protect the initial basis, so I've never seen the need to sell EIA's. That said, there is certainly a place for the product in today's financial world. At stake are the credentials of those selling them, and along with the registration of the product, the design will change and the commissions will change dramatically, too. But that's a different thread...
Swymmer
Re: The SEC and insurance business
Didn't FINRA give a no go to EIA's?
I was an Reg Rep from 85 to 2000 and then a State RIA from 2000 to 2002. I can say this, my brethren series 7 people were often not anymore capable to guess the future than anyone else. Top that off with the brokers working for wirehouses that have quotas and you have a prescription for trouble. Personally I was always with independent BD's running my own thing and never had the quota problem.
An FIA is not meant to out run a security, at least in my opinion. I think we are entering a time when people will again consider safety of principal. In their equation they will worry more about the return of their money than the return on their money.
I remember people in the 1990's would get upset if they only made 25% return while their neighbor made 35% on an IPO. I fired some clients back then because I was not going to play cowboy. Today many of those clients are happy they listened to me because during the dot.com meltdown they weren't crying.
So to me I really find it laughable when FINRA posts an investor alert on their site. Then you'll find things like:
FINRA must not be aware that dividend paying annuities aren't exactly flowing in the market place. Where are all those mutual companies? They say......"Exclusion of Dividends. Most EIAs only count equity index gains from market price changes, excluding any gains from dividends."
I mean everything I read from FINRA about the need to control the FIA is often present in the securities market. Like VA's, the different mutual shares (A,B,C). SO what will they change? Nothing except FNRA gets some new annual $500 fees. Wasn't the package for the retiring CEO something like $8 million.
The day I got out of the securities field was a day I will not regret.
I was an Reg Rep from 85 to 2000 and then a State RIA from 2000 to 2002. I can say this, my brethren series 7 people were often not anymore capable to guess the future than anyone else. Top that off with the brokers working for wirehouses that have quotas and you have a prescription for trouble. Personally I was always with independent BD's running my own thing and never had the quota problem.
An FIA is not meant to out run a security, at least in my opinion. I think we are entering a time when people will again consider safety of principal. In their equation they will worry more about the return of their money than the return on their money.
I remember people in the 1990's would get upset if they only made 25% return while their neighbor made 35% on an IPO. I fired some clients back then because I was not going to play cowboy. Today many of those clients are happy they listened to me because during the dot.com meltdown they weren't crying.
So to me I really find it laughable when FINRA posts an investor alert on their site. Then you'll find things like:
FINRA must not be aware that dividend paying annuities aren't exactly flowing in the market place. Where are all those mutual companies? They say......"Exclusion of Dividends. Most EIAs only count equity index gains from market price changes, excluding any gains from dividends."
I mean everything I read from FINRA about the need to control the FIA is often present in the securities market. Like VA's, the different mutual shares (A,B,C). SO what will they change? Nothing except FNRA gets some new annual $500 fees. Wasn't the package for the retiring CEO something like $8 million.
The day I got out of the securities field was a day I will not regret.
Re: The SEC and insurance business
Just found this on FINRA's website
FINRA, those folks that like to monitor all activities to prevent misleading statements from brokers....ah now have a look at this. It is from their own site.
http://www.finra.org/InvestorInformatio ... /index.htm
"Is it possible to lose money in an EIA?
Yes. Many insurance companies only guarantee that you'll receive 90% of the premiums you paid, plus at least 3% interest. Therefore, if you don't receive any index-linked interest, you could lose money on your investment."
Ok here is the rub. What they want to say is, many insurance companies pay the minimum guaranteed rate on 90% of the premiums. Maybe I've been hiding under a rock but I am not aware of an FIA that aside from the surrender charge, will keep 10% of your money. Their statement does sound like you will only get 90% of the premiums you paid.
I've made a copy of this and will be making it part of my rebuttal to the SEC. Plus I am sending a copy of it to my legal guy. Perhaps he will send a letter to them discussing misleading statements.
Maybe there is an insurance company out there that will keep 10% but many....I don't think so.
Now if a Reg Rep would have made such a statement they would be writing a check to the FINRA arbitration board today. Paying the fine. But the folks that are above you can make mistakes and get away with it. Funny how that works. :arghh:
FINRA, those folks that like to monitor all activities to prevent misleading statements from brokers....ah now have a look at this. It is from their own site.
http://www.finra.org/InvestorInformatio ... /index.htm
"Is it possible to lose money in an EIA?
Yes. Many insurance companies only guarantee that you'll receive 90% of the premiums you paid, plus at least 3% interest. Therefore, if you don't receive any index-linked interest, you could lose money on your investment."
Ok here is the rub. What they want to say is, many insurance companies pay the minimum guaranteed rate on 90% of the premiums. Maybe I've been hiding under a rock but I am not aware of an FIA that aside from the surrender charge, will keep 10% of your money. Their statement does sound like you will only get 90% of the premiums you paid.
I've made a copy of this and will be making it part of my rebuttal to the SEC. Plus I am sending a copy of it to my legal guy. Perhaps he will send a letter to them discussing misleading statements.
Maybe there is an insurance company out there that will keep 10% but many....I don't think so.
Now if a Reg Rep would have made such a statement they would be writing a check to the FINRA arbitration board today. Paying the fine. But the folks that are above you can make mistakes and get away with it. Funny how that works. :arghh:
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indexedannuitygirl
- Insurance Journal Fan
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Re: The SEC and insurance business
It is NOT possible to lose money in an Indexed Annuity as a result of a decline in the index. It IS possible, however, to lose money in an Indexed Annuity as a result of early withdrawal. That is where that 90% @ 3% comes in- this is the minimum guaranteed surrender value. (Not to be confused with the guaranteed annual return interest on a traditional fixed annuity.)
The insurance company guarantees that regardless of market performance, they will guarantee 90% of the client's money will accumulate at 3% interest in the event of surrender. This means they client is "made whole" about year four of the contract. There is a cost to offering higher upside potential than traditional fixed annuities- and this is why the minimum guarantees are lower. However, if the client does not surrender more than their penalty-free amount prior to the end of the term, they will not be penalized by the 10% difference.
The insurance company guarantees that regardless of market performance, they will guarantee 90% of the client's money will accumulate at 3% interest in the event of surrender. This means they client is "made whole" about year four of the contract. There is a cost to offering higher upside potential than traditional fixed annuities- and this is why the minimum guarantees are lower. However, if the client does not surrender more than their penalty-free amount prior to the end of the term, they will not be penalized by the 10% difference.
Re: The SEC and insurance business
Annuitygirl
Read how it is written, not what you and I know what it means. Pretend you know nothing about an FIA.
How FINRA has it written.......
"Is it possible to lose money in an EIA? Yes. Many insurance companies only guarantee that you'll receive 90% of the premiums you paid"
Now, is the above true? As it is written, I don't believe it is a truthful statement.
It should read, many insurance companies guarantee that you'll receive 3% interest on 90% of the premiums you paid. The way FINRA wrote it sounds like there is 10% that can be lost.
I believe insurance companies guarantee that you'll receive 100% of the premiums you paid. As FINRA has it written it, I doubt if any State Insurance Commissioner would allow it on marketing materials.
Annuities have always had surrender charges and it was never before a reason to consider annuities a security.
FINRA also has this sentence on the same site..........
"Therefore, if you don't receive any index-linked interest, you could lose money on your investment."
IMHO the above sentence can not stand on its own as a clear statement.
Remember the investor alerts are to be clear, concise and understandable by people that have no knowledge of a product.
Recent reading brings this:
http://enews.insnewsnet.com/article.asp?n=1&id=95852
"In any event, the proposal says it would enhance investor protection, because index annuities would be regulated by FINRA and sold by registered representatives. The proposal also asks whether the securities treatment should be extended to index life insurance or any fixed insurance product using a market value adjustment.
SEC notes that this proposal will have costs and could result in a loss of revenue and diminished competition, but that the benefits outweigh the costs. SEC is accepting comments of the proposal until Sept. 10 and the proposal will be effective for all index annuities sold one year after adoption."
Read how it is written, not what you and I know what it means. Pretend you know nothing about an FIA.
How FINRA has it written.......
"Is it possible to lose money in an EIA? Yes. Many insurance companies only guarantee that you'll receive 90% of the premiums you paid"
Now, is the above true? As it is written, I don't believe it is a truthful statement.
It should read, many insurance companies guarantee that you'll receive 3% interest on 90% of the premiums you paid. The way FINRA wrote it sounds like there is 10% that can be lost.
I believe insurance companies guarantee that you'll receive 100% of the premiums you paid. As FINRA has it written it, I doubt if any State Insurance Commissioner would allow it on marketing materials.
Annuities have always had surrender charges and it was never before a reason to consider annuities a security.
FINRA also has this sentence on the same site..........
"Therefore, if you don't receive any index-linked interest, you could lose money on your investment."
IMHO the above sentence can not stand on its own as a clear statement.
Remember the investor alerts are to be clear, concise and understandable by people that have no knowledge of a product.
Recent reading brings this:
http://enews.insnewsnet.com/article.asp?n=1&id=95852
"In any event, the proposal says it would enhance investor protection, because index annuities would be regulated by FINRA and sold by registered representatives. The proposal also asks whether the securities treatment should be extended to index life insurance or any fixed insurance product using a market value adjustment.
SEC notes that this proposal will have costs and could result in a loss of revenue and diminished competition, but that the benefits outweigh the costs. SEC is accepting comments of the proposal until Sept. 10 and the proposal will be effective for all index annuities sold one year after adoption."
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indexedannuitygirl
- Insurance Journal Fan
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Re: The SEC and insurance business
The bottom line is that the money that backs these products is held in the insurer's general accounts, not the separate accounts (like a securities product). The insurance company bears the risk, not the client (such as on a securities product). The only item that bears addressing is whether, or not the product is marketed primarily as an investment. This needs to be more clearly defined- just WHAT exactly IS an investment?
The SEC's premise is that future gains are unknown, and THAT must make an Indexed Annuity a security. That being the case, a traditional annuity must be a security, as nearly every company I have worked with has dropped the renewal rates on clients' annuities at some point. A universal life product MUST be a security, as rates usually drop on those products as well. What next? CDs?
The bottom line is that this is a market conduct issue, and not a PRODUCT issue. Mandate additional training, don't put a band-aid on the issue by turning the product into something it isn't. I'm certain that asking for additional disclosure by requiring clients to read prospectuses isn't going to fix anything.
Sheryl J. Moore
President and CEO
AnnuitySpecs.com
LifeSpecs.com
Advantage Group Associates, Inc.
The SEC's premise is that future gains are unknown, and THAT must make an Indexed Annuity a security. That being the case, a traditional annuity must be a security, as nearly every company I have worked with has dropped the renewal rates on clients' annuities at some point. A universal life product MUST be a security, as rates usually drop on those products as well. What next? CDs?
The bottom line is that this is a market conduct issue, and not a PRODUCT issue. Mandate additional training, don't put a band-aid on the issue by turning the product into something it isn't. I'm certain that asking for additional disclosure by requiring clients to read prospectuses isn't going to fix anything.
Sheryl J. Moore
President and CEO
AnnuitySpecs.com
LifeSpecs.com
Advantage Group Associates, Inc.
Re: The SEC and insurance business
Annuitygirl,
You are spot on with that last post. If the SEC can say money in the general account creates a registered product, I've been saying the same thing........all life and annuity insurance products are fair game.
I'm on the path to make all insurance people aware of what the SEC is trying to do.
You are spot on with that last post. If the SEC can say money in the general account creates a registered product, I've been saying the same thing........all life and annuity insurance products are fair game.
I'm on the path to make all insurance people aware of what the SEC is trying to do.
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indexedannuitygirl
- Insurance Journal Fan
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Re: The SEC and insurance business
If you need any help, please feel free to direct all agents to a newly-created portion of my website at http://www.annuityspecs.com/SECRuling.aspx . This section is strictly dedicated to keeping agents, marketing organizations, and insurance carriers up-to-date with the SEC's documents/videos/comments on the matter, as well as public articles and carrier's reactions to the subject.
Even if you don't care for Indexed Annuities, you have to be willing to accept the fact that the SEC is not right for suggesting that a general account product (with guarantees), where the insurance company accepts the risk, IS a security. If you want your other fixed products to remain protected from the SEC, then voice your opinion at http://www.sec.gov/comments/s7-14-08/s71408.shtml . United we stand, divided we fall- whether it's indexed or traditional fixed.
sm
Even if you don't care for Indexed Annuities, you have to be willing to accept the fact that the SEC is not right for suggesting that a general account product (with guarantees), where the insurance company accepts the risk, IS a security. If you want your other fixed products to remain protected from the SEC, then voice your opinion at http://www.sec.gov/comments/s7-14-08/s71408.shtml . United we stand, divided we fall- whether it's indexed or traditional fixed.
sm