Response: Dem-Sponsored Loophole In Financial Reform Bill Could Hurt Seniors
July 9, 2010 by Sheryl J. Moore
PDF for Setting it Straight with The Huffington Post
ORIGINAL ARTICLE CAN BE FOUND AT: Dem-Sponsored Loophole In Financial Reform Bill Could Hurt Seniors
Dear Huffington Post Editor and staff,
I am an independent market research analyst who specializes exclusively in the indexed annuity (IA) and indexed life markets. I have tracked the companies, products, marketing, and sales of these products for over a decade. I used to provide similar services for fixed and variable products, but I believe so strongly in the value proposition of indexed products that I started my own company focusing on IAs exclusively. I do not endorse any company or financial product, and millions look to us for accurate, unbiased information on the insurance market. In fact, we are the firm that regulators look to, and work with, when needing assistance with these products.
I am contacting you, as the author of an article that was published at The Huffington Post, “Dem-Sponsored Loophole In Financial Reform Bill Could Hurt Seniors.” This article had an alarming number of inaccurate and misleading statements about indexed annuities in it. I am contacting you in response to these inaccuracies, to ensure that you and your readers have accurate, unbiased information on these products in the future.
First, indexed annuities have not been referred to as “equity indexed annuities” since the late 1990’s. The insurance industry has been careful to enforce a standard of referring to the products as merely “indexed annuities” or “fixed indexed annuities,” so as not to confuse consumers. This industry wants to make a clear distinction between these fixed insurance products and equity investments. It is the safety and guarantees of these products which appeal to consumers, particularly during times of market downturns and volatility. Your help in avoiding any such confusion is so greatly appreciated.
Second, Senator Harkin’s amendment to the financial reform bill is not “unrelated to the pending financial reform bill.” The pending bill is intended to protect Americans from future financial hardship. Indexed annuities are the only retirement income product that can guarantee Americans an income they cannot outlive, while still providing a minimum guarantee and protecting from loss as a result of market volatility. In light of this, I think you can see why Senator Harkin’s amendment is quite appropriately associated with the pending financial reform bill.
Third, indexed annuities do not have a “long association with deception and predation.” I would be very interested in having you send me factual evidence of this claim. Coincidentally, I have data which supports the contrary. See data below from the National Association of Insurance Commissioner’s Closed Complaint Database on annuities:
TOTAL INDEXED ANNUITY COMPLAINTS FOR 2006: 187
TOTAL INDEXED ANNUITY COMPLAINTS FOR 2007: 235
TOTAL INDEXED ANNUITY COMPLAINTS FOR 2008: 220
TOTAL INDEXED ANNUITY COMPLAINTS FOR 2009: 148
Based on our research, this results in average annual complaints as follows:
AVERAGE INDEXED ANNUITY COMPLAINTS PER COMPANY 2006: 4.35
AVERAGE INDEXED ANNUITY COMPLAINTS PER COMPANY 2007: 4.12
AVERAGE INDEXED ANNUITY COMPLAINTS PER COMPANY 2008: 3.86
AVERAGE INDEXED ANNUITY COMPLAINTS PER COMPANY 2009: 3.29
So, not only have complaints on these indexed annuities declined annually for the past three years, but the average has declined consistently for the past four years. Conversely, variable annuity complaints (which are overseen by the Securities and Exchange Commission) have always been greater than the number of indexed annuity complaints, and have risen in recent years. Certainly, we do strive for 100% customer satisfaction in the insurance market, but I would contend that an average of only 3.29 complaints annually, per company, is quite reasonable and not indicative of “deceptive” sales practices.
Fourth, the Securities and Exchange Commission (SEC) has no regulatory authority over indexed annuities. Investments (products where consumers risk the loss of principal AND gains) such as stocks, bonds, and mutual funds are regulated by the SEC and the Financial Industry Regulatory Authority (FINRA). Indexed annuities are fixed insurance products; similar to fixed annuities and whole life insurance. These fixed insurance products never put the purchaser’s principal or gains at risk due to market volatility. Indexed annuities, like other fixed insurance products, are regulated by the 50 state insurance commissioners of the United States. Together, they form the National Association of Insurance Commissioners (NAIC).
Fifth, indexed annuities do not “act like securities” at all. The only feature that indexed annuities share with securities is the fact that they both receive excess interest based on the performance of a stock index. However, indexed annuities never give the purchaser an option of investing directly in the market; the excess interest on these products is merely based on the performance of the index. A security actually gives the purchaser the option of investing directly in the market. This makes a HUGE difference because indexed annuity purchasers are never at risk of losing money due to market declines when securities purchasers can and DO lose not only gains, but also their principal investment, when the market falls. Another major difference between the two products is that indexed annuities’ excess interest is limited, where securities’ excess interest are not. The monies that back indexed annuities are held in the insurance companies’ general account. The monies that back securities are held in the insurance companies’ separate accounts. Indexed annuities provide a guaranteed 0% floor and a minimum guaranteed surrender value, securities do not.
Sixth, the SEC has been given the authority to regulate any entity they wish to declare regulation over via our U.S. Constitution. That doesn’t mean that they will or should.
Seventh, indexed annuity purchasers are not referred to as “investors.” Only those who purchase securities/investments, which risk loss of principal and gains, are referred to as “investors.” The NAIC does not (and never has) permit the use of the word “investment” nor “investor” with fixed insurance products such as indexed annuities.
Eighth, purchasers of indexed already have more than “basic protection,” and that includes senior purchasers. It appears that you are unfamiliar with the current regulatory structure that indexed annuities operate under, which is very thorough and effective. The insurance commissioners regulate indexed annuities with rigorous standard non-forfeiture laws, advertising guidelines, suitability regulations, and other rules. The states hold the authority to take sanctions against insurance agents including, but not limited to, license revocation, penalties and fines. An interesting comparison of state and federal regulation exists relative to annuity complaints specifically. If I need to make a complaint on an indexed annuity, the state insurance division has to respond to me within ten days; and I incur no cost in my efforts to resolve the problem. Compare this with the exhaustive complaint process on the securities side; delays, lawyers, and a lot of my money spent. Yes, SEC regulation is different, but it most definitely is not better than insurance regulation.
Ninth, I have NEVER heard of anyone “tricking [someone] into purchasing [an indexed annuity] under false pretenses.” I am the foremost authority on indexed annuities, and I have worked with indexed insurance products since shortly after their introduction. I not only work with regulators and litigators on these products, but also with compliance professionals from every company in this market, and I have never heard of this. Certainly, there have been instances of someone purchasing a product that they did not properly understand (which occurs with the purchase of all types of insurance, investment, and banking products). However, I think that your accusation is not only false and inflated, but a little harsh.
Tenth, neither the SEC nor the North American Securities Administrations Association (NASAA) are reputable sources of information on indexed annuities. In fact, neither the SEC nor NASAA have any regulatory authority or experience with indexed annuities. In addition, the SEC has a vested interest in indexed annuities being regulated as securities so that they can increase their revenue and job security. In the future, if you are looking for a reliable regulatory resource on fixed insurance products (such as indexed annuities), I encourage you to seek out Susan Voss, the insurance commissioner of the state of Iowa. Not only is she credible, but 40.82% of indexed annuity sales flow through Iowa-domiciled insurance companies; for that reason she has become an authority on the products. Let me know if you need her contact information, and I happy to oblige.
Eleventh, the NASAA “survey” may have identified indexed annuities as ONE of the products used in senior investment fraud in the attached report, but so were certificates of deposit (CDs) and more than a dozen other products. It is important to note that indexed annuities are just a tool in the financial professional’s toolbox. Would you outlaw hammers because a serial murderer used them to plummet their victims? I would think it would be rather difficult to build a house without a hammer…in the same manner, it is not good to damn indexed annuities because you heard a story about someone behaving badly while suggesting an indexed annuity.
Twelfth, there is no evidence that the currently indexed annuity regulatory structure is not functioning properly. Until someone is able to provide evidence of such, I would suggest that we start questioning why the SEC is trying to expand their regulatory realm. This is the organization that let Bernard Madoff swindle $50 billion from American’s retirement nest eggs. Clear warning signs of Madoff’s fraud began to emerge as much as a decade before he was caught, and yet SEC did nothing. This is the same organization that your organization suggests regulate indexed insurance products? I think you should re-think that philosophy based on this alone.
Thirteenth, Wall Street is not synonymous with the life insurance industry. Wall Street sells securities products, not life insurance products.
Fourteenth, indexed annuities have no “costs.” All annuities have surrender charges whether fixed, indexed, or variable- if this is what you are referring to. There are indexed annuities with surrender charges as short as three years. In addition, EVERY indexed annuity permits penalty-free withdrawals of 10% of the annuity’s value annually. Some even allow as much as 50% of the annuity’s value to be withdrawn in a single year. Moreover, 9 out of 10 indexed annuities provide a waiver of the surrender charges, should the annuitant need access to their money in events such as nursing home confinement, terminal illness, disability, and even unemployment. Couple this with the fact these products pay the full account value to the beneficiary upon death, and I think that you’ll see that consumers have tremendous access to their cash value when they purchase indexed annuities. These are some of the most liquid retirement income products available today!
Fifteenth, sales “abuses” are not “rampant” in the indexed annuity industry. See the previously mentioned complaint data for support of this.
Sixteenth, indexed annuities are not “hybrid products” and they do not “combine insurance and securities.” They are fixed annuities; the client’s monies are never at risk of loss from market fluctuations with indexed annuities, as they are with securities.
Seventeenth, there is no need for anyone to “crack down on abusive financial products” in relation to indexed annuities. The rare instances of abuse here are far less than in the products that the SEC regulates! And need I remind you that these products, in and of themselves, are not bad. No insurance product is. Are financial services products sometimes used in the process of abuse? Yes. However, that does not make the products bad.
The lack of journalistic integrity with this post is extremely alarming. Don’t you have any regard for the TRUTH? It seems like you decided to post an article based on rumors and anecdotal information alone. At one time, The Huffington Post was a highly-regarded resource. With a habit of posting such blatantly-false pieces with such a lack of fact checking, I have to question the future reputation of your paper. I would suggest that removal or correction of this article would be a step in the right direction.
Should you have a need for a fact-checking source on fixed insurance products, such as indexed annuities, in the future- please do not hesitate to reach out to us. Thank you.
Sheryl J. Moore
President and CEO
AnnuitySpecs.com
LifeSpecs.com
IndexedAnnuityNerd.com
Advantage Group Associates, Inc.
(515) 262-2623 office
(515) 313-5799 cell
(515) 266-4689 fax
