Response: A Flawed but Diligent Watchdog
December 3, 2010 by Sheryl J. Moore
PDF for Setting it Straight with National Underwriter
ORIGINAL ARTICLE CAN BE FOUND AT: A Flawed but Diligent Watchdog
Trevor,
Good afternoon. My name is Sheryl J. Moore and I am the foremost authority in the indexed annuity market. I believe that you are acclimated with my work, as I wrote for National Underwriter: Life and Health for six years prior to their acquisition by Summit Business Media.
I am an independent market research analyst who specializes in the indexed annuity and 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 and IUL 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.
The reason for my email is because I recently had the occasion to read an article that you wrote, which was published by National Underwriter, “A Flawed but Diligent Watchdog.” I WAS ABSOLUTELY EMBARASSED BY THIS ARTICLE, TREVOR! Your piece had some disgustingly inaccurate information in it. Never, in the 12 years that I have subscribed to National Underwriter have I seen a malicious, inaccurate article about indexed annuities published in the covers of NU: UNTIL TODAY. You should know better and so should your editors. Such misinformation reflects poorly not only on you, but also on National Underwriter.
FIRST, it is inappropriate to refer to indexed annuities as ‘equity-indexed annuities’ or ‘EIAs.’ Indexed annuities have not been called “equity-indexed annuities” or “EIAs” by those in the insurance industry 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. The interest potential of these products is limited, unlike equities investments. In addition, it is the safety and guarantees of these products which appeal to consumers, particularly during times of market downturns and volatility. Both you and National Underwriter should know better. Having both of your help in avoiding any such confusion in the future is greatly appreciated. Thank you.
SECOND, I resent your insinuation that no state has “take[n] charge of [indexed annuities].” Perhaps you are not familiar with the structure of our nation’s state regulation of life insurance? The insurance industry has done a very good job of imposing strict regulations to ensure proper disclosure, market conduct, suitability, product development, and sales practices in the fixed and indexed annuity industries, Trevor. The currently regulatory structure that indexed annuities operate under is very thorough and effective. The insurance commissioners regulate indexed annuities with rigorous standard non-forfeiture laws, disclosure requirements, 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, Trevor Thomas, SEC regulation is different, but it most definitely is not better than insurance regulation.
THIRD, as a licensed insurance agent, I can assure you that the training requirements for those selling indexed annuities are not “easy.” Although I have never contracted with any insurance company or marketing organization (in order to maintain my credibility as a market research analyst), I do attend continuing education and training regularly. I am also a continuing education provider and I specifically provide courses on indexed insurance products. This courses are designed to ensure that the person taking the course is able to obtain a full understanding of indexed annuity products. They are not, however, by any means “easy.”
FOURTH, the NAIC’s Suitability in Annuity Transactions Model Act has existed in one form or another since 2003. Therefore, there has been assurance that annuity sales are ‘suitable’ for seven years now; it is not as if insurance agents suddenly have to ensure that indexed annuities are sold in a suitable manner. This has been the standard for a long time, Trevor!
FIFTH, why would you suggest that indexed annuities be imposed a fiduciary standard when even variable annuities do not have to adhere to this standard? Certainly a risk money place, variable annuities- where the purchaser can lose money due to market fluctuations, should have a higher standard of suitability than indexed annuities! It seems absolutely ludicrous to suggest that the process of selling a product to a 90-year-old lady, where she can lose her life savings, should have a lower level of scrutiny than selling her a product which protects her principal and interest in-whole.
SIXTH, INDEXED ANNUITIES DO NOT “EARN FAT COMMISSIONS FOR AGENTS.” YOU ARE CONTRIBUTING TO THE MISINFORMATION ON THESE PRODUCTS IN THE MEDIA, TREVOR AND IT IS NOT OKAY. The average commission on indexed annuities as of 3Q2010 was a mere 6.34% (and even lower for annuities sold to older-aged purchasers). Keep in mind that this commission is paid one time, at point of sale only, and the agent services the contract for life. By comparison, many securities products such as mutual funds pay generous, consistent commissions annually. This is not an apples-to-apples comparison, so if it is your basis for judging indexed annuity commissions, I suggest you evaluate your benchmarking.
SEVENTH, being paid a commission does not necessarily create a conflict of interest, Trevor. Would you suggest your readers use someone other than a real estate agent for information on buying a home? Someone other than a car salesman for information on purchasing an automobile? Do people know that these professionals are going to be paid a commission in exchange for the services rendered? YES. Does that mean that the salesperson is going to only look out for their best interests? NO. Sales jobs are built on relationships; the cornerstone of these relationships is repeat business and referrals. So, if the car salesperson sells me a junky vehicle (where they received a high commission), what is my likelihood to suggest that salesperson to my friends and neighbors? What is the likelihood that I’ll buy my next vehicle from that same person? Not good in either scenario. I think you get the picture. Insurance agents NEED client loyalty and referrals. Anyone who makes an inappropriate sale is obviously going to lose out on business, not to mention face potential fines, license revocation, and imprisonment. With that understanding, I think you can agree that agents are not in a position of “conflict” when suggesting indexed annuities to their risk-averse clients.
It saddens me to see National Underwriter change in the way that it has. It used to be my #1 source for insurance news. Now, I rarely read a single article in each issue. The issue that this article was published in was particularly interesting, as it villainized the NAIC and state-regulation. Maybe you folks haven’t noticed that the insurance industry that operates under this regulatory structure (quite happily, I might add), is your primary subscriber base. Do you realize that an issue bashing the NAIC is likely to alienate your subscribers? I likened this issue of NU to an issue of Cat Fancy spent bashing the feline species. Maybe you folks need to re-group and figure out what you are doing over there.
In the interim, if you decide to write additional articles on indexed insurance products, I would suggest that you do some fact-checking. Despite my disappointment, I would be happy to serve as a resource to you on this. It is so important that your readers have access to accurate information on these fast-growing insurance products. I think you’ll look much more credible to your readers if you stick to the facts.
Thank you.
Sheryl J. Moore
President and CEO
AnnuitySpecs.com
LifeSpecs.com
IndexedAnnuityNerd.com
(515) 262-2623 office
(515) 313-5799 cell
