Letter to the Editor: Some Sources Not Reliable
January 9, 2010 by Sheryl J. Moore
- By Sheryl Moore
Thank you for your recent Variable and Index Product Selling Guide (Agent’s Sales Journal, February 2007), which provided a forum to focus on the growing index life and index annuity markets. I was surprised to read the Perspectives column at the beginning of this issue, where readers are warned to “Tread Lightly on IA Sales.”
A source cited in your column noted that index annuity (IA) sales had “dropped by 7 percent in the third quarter of 2006, mostly driven by class-action suits.” My partner Jack Marrion and I have published the Advantage Index Sales & Market Report for a decade, and while we showed IA sales dropped by 5.7 percent in the third quarter of 2006, this decline was primarily due to competitive rates on traditional fixed rate instruments such as CDs. Another contributing factor was a couple of major carriers having difficulties getting on broker-dealers’ “approved lists” for different reasons, but based on the results of the nearly 100 percent of all carriers participating in our survey, I can say that the decline in sales had nothing to do with class action suits as your source alluded.
Many people make the assumption that index annuities are high-commission products. Although the definition of “high” may vary, the average street-level commission for all index annuities as of third quarter 2006 was only 7.01 percent. Many are quick to pick on the index annuity business — especially those who sell competing products. It is easy to feel threatened by a safe money instrument that provides principal protection with upside potential.
I thought you did a tremendous job noting the regulatory landscape since Notice to Member 05-50 hit in August 2005. I feel it is also important to mention that index annuities are fixed insurance products, therefore regulated by the state insurance departments, and the NASD has no regulatory authority over these products whatsoever.
President and CEO of AnnuitySpecs.com