Response: Benelli: SEC chickens out on annuity rule
January 3, 2010 by Al Benelli
ORIGINAL ARTICLE CAN BE FOUND AT: Benelli: SEC chickens out on annuity rule
Dear Mr. Benelli:
I am an independent market research analyst who specializes exclusively in the indexed annuity 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 recently had the occasion to read your article (below), “Benelli: SEC chickens out on annuity rule,” which was published in the The Times Herald. I wanted to take the opportunity to contact you because your article was not only inaccurate, but completely biased. You do the readers of the The Times Herald a great disservice with your lack of education on these products.
First, indexed annuities are not an “unregulated product.” They are regulated by the 50 state insurance divisions of the United States. These insurance commissioners regulate indexed annuities with rigorous standard non-forfeiture laws (SNFL), 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.
Secondly, you indicate that indexed annuities have “been called the AK-47 of senior abuse.” Honestly, in the past 11 years that I have been studying the insurance market, this is the first time I’ve heard that phrase. You probably coined it yourself, in fact. It is interesting that you think indexed annuities are often used as the product for abusing seniors when complaints on these products do not back up your assertion. According to the National Association of Insurance Commissioner’s (NAICs) Closed Complaint Database, you’ll see a startling difference between the complaints on products regulated by insurance commissioners and those regulated by the SEC:
■ In 2007, indexed annuity complaints averaged 4.1 per company (in comparison, variable annuity complaints averaged 5.9 per company)
■ In 2008, indexed annuity complaints averaged 3.8 per company (in comparison, variable annuity complaints averaged 7.1 per company)
So, not only have indexed annuity complaints declined, but variable annuity complaints are rising! In addition, indexed annuity complaints are far fewer than the complaints on products that the SEC is already regulating! This certainly gives pause to the concept of the SEC’s current level of regulation on annuities.
Thirdly, indexed annuities are not “high commission” products. In fact, the average street level commission on indexed annuities as of 4Q2009 was 6.47%. Compare this one-time commission to the consistent, generous commissions that are paid on products such as stocks and bonds, and I think you’ll agree that indexed annuity commissions are quite reasonable.
Fourthly, indexed annuities are not “fee-laden.” In fact, indexed annuities have no explicit fees. Some products offer an optional Guaranteed Lifetime Withdrawal Benefit (GLWB) rider, which may or may not have an annual fee. However, indexed annuities in and of themselves have no fees.
Fifthly, you infer that indexed annuities should be federally-regulated, rather than by state insurance commissioners. Please provide evidence of the supreme regulation of the Securities and Exchange Commission (SEC). 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 you would suggest regulate an insurance product? I think you should rethink your inclinations. Indexed annuities are regulated by the 50 state insurance divisions of the United States. These 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 in 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!
In addition, enacting the unnecessary and duplicative 151A regulation would result in increased costs to the insurance companies selling these products. These increased costs, in turn, will be passed on to the indexed annuity purchaser. How can that be better for American consumers?
FYI- Mr. Benelli the issue that started the 151A debate in the first place was purported “rising variable and indexed annuity complaint levels” as asserted by Alabama securities regulator, Joseph Borg on Dateline NBC. It was only after my firm provided the actual indexed annuity complaints (above) that SEC changed their platform to consumer “risk.”
Every indexed annuity product in the insurance market clearly discloses any surrender charges as well as all other product features. an effort to search for any evidence of your claim, I did a quick review of top indexed annuity (IA) carriers’ IA consumer sales guides. For example:
● The top-selling indexed annuity in the country displays the following surrender charge schedule in their consumer brochure:
● The second-best selling indexed annuity in the courty displays the following surrender charge schedule in their consumer brochure:
I guess I’m just not sure why you would think these terms are not clearly disclosed? Have you ever reviewed the marketing materials for indexed annuities at all?
You are wrong on your example of a client putting in $100,000 premium into an indexed annuity. Their minimum guarantees would be as follows on the typical contract:
|Year||Premium Amount||Interest Rate|
So, as you can see- they would not only receive a return of premiums paid by year five, but they would have received NO LESS than 117% return at the end of the contract. In addition, indexed annuities are available with surrender charges as short as one year. AND all indexed annuity purchasers are given access to 10% of their annuity’s value, annually, without being subject to surrender penalties (some products even allow as much as 20% to be taken annually). In addition, 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 you would have difficulty implying that these products offer poor liquidity.
FYI- we already have strict suitability standards in the indexed annuity market. In fact, we’ve just gone back to the NAIC to standardize and step-up these standards. We also have minimum licensing and education requirements for these products. In fact, some states require indexed annuity-specific Continuing Education (CE).
Mr. Benelli, I certainly hope that you do more checking before publishing such inaccurate information in the future. Now, more than ever, American are looking for reliable sources to advise where they can protect their retirement dollars. I certainly hope that the highly-regarded Times Herald reconsiders your sources in the future.
If you do find that you have a need for the FACTS on these products in the future, please do not hesitate to reach out to us. Thank you.
Sheryl J. Moore
President and CEO
Advantage Group Associates, Inc.
(515) 262-2623 office
(515) 313-5799 cell
(515) 266-4689 fax