July 9, 2008
Dear SEC,
This note is to object to the proposed rule to classify Fixed Indexed Annuities as securities. First, let me state that I am currently securities licensed, so the proposed rule would have a minimal impact on my business as compared to agents who only have a Life license. Even so I feel that it is a wrongheaded thing to do.
Fixed Indexed Annuities ARE fixed products. They are not invested in securities and do not have any of the risks of securities. They are purchased for many of the same reasons that people purchase CDs or insurance - for the safety and guarantees. If they want to take the risks associated with the market they can buy a VARIABLE annuity, which IS regulated as a security. The SEC mentions case law regarding the evaluation of whether an FIA is a security. According to the judge in Malone v. Addison Ins. Marketing, an FIA is NOT A SECURITY.
The systems for oversight are already properly set up with each of the state's insurance departments where suitability requirements are adequately stringent and complaint resolution is in place and effective. Insurance companies have been highly conscientious in regards to appropriate sales practices and disciplining agents who do not adhere to those ethical standards. To place onerous federal regulations on Fixed Indexed Annuities would reduce both the number of agents selling, and the number of clients purchasing, a product that is a undeniably a very effective financial planning tool and will become more sought after as the large number of people in my generation (the Boomers) plan for and then move into retirement. There are bad apples in any area of the financial services business, but I have not seen any figures that show there are a disproportionate number of unethical agents selling Fixed Indexed Annuities. Those agents should be found and disciplined accordingly as with any breach of trust. If you want to go after people who have harmed the public, why aren't you chasing the stock brokers and financial planners who put their clients in risky investments at the beginning of this decade and watched as they lost 40% of the value of their portfolios??? Yes, a senior who was sold a Fixed Indexed Annuity that was inappropriate for their investment timeline may have to pay a surrender charge to get their money out should the need arise - but they sure as hell won't lose 40% of their investment.
The federal government has already screwed up Social Security by raiding the excess funds that have been collected since near the very beginning (THERE IS NO SOCIAL SECURITY TRUST FUND - every last dollar has already been spent and is now part of the national debt), and by refusing to update the system to personally owned accounts with some access to the markets. Hence it is unlikely that Social Security will be there for us in our later years. Why would you now try to restrict the sale of a product that helps people do the best job they can of managing their own money for retirement income????
This proposed rule is a bad idea, it's doubtful if it will pass legal scrutiny, and it needs to be expeditiously put to rest.
Regards,
Sean Archambault