Encourage clients to comment on 151A

indaville · 10-13-2008, 01:20 PM

Now that the market has dropped the value of a good FIA has been proven. The SEC has re-opened the comment window and I think having clients comment would go a long way in getting the SEC/FINRA/Congress realize FIA's are fixed products.

We are going to be asking clients that have experienced a 0% decline so far this year to comment on the idea of further SEC regulation.

This proposed rule has the potential to negatively impact all of us regardless of which side of the FIA debate you might be on.

Matt

djs · 10-13-2008, 02:20 PM

Tie this together for me, how does the SEC/FINRA/Congress change the fact that these are fixed products?

I understand how they affect you, but how does it affect the product? What exactly is the client going to comment on?

Also, why does it negatively impact all of us? I haven't followed this discussion, other than to know it's going on.

Dan

dannysdad · 10-13-2008, 02:27 PM

As it becomes more apparent that many insurance agents don't even understand FIA's, I'm getting a lot more comfortable with their use being regulated.

indaville · 10-13-2008, 09:52 PM

Quote:

Originally Posted by djs

Tie this together for me, how does the SEC/FINRA/Congress change the fact that these are fixed products?

I understand how they affect you, but how does it affect the product? What exactly is the client going to comment on?

Also, why does it negatively impact all of us? I haven't followed this discussion, other than to know it's going on.

Dan

The SEC has proposed a rule to make FIA's a security. FINRA wants them to be securities so they can pick up lost revenue. Congress gives the SEC their authority.

The client can comment on how over the past year even though the markets are down 30-40% they have not lost a dime. Why then should they be regulated as a security?

It impacts every licensed agent because this is step in the direction of more federal regulation of our practices. FINRA hopes to one day regulate all or most insurance and financial products. FINRA involved is bad for all of us.

Matt

JMO Fan · 10-14-2008, 12:35 PM

Just curious -- while FIAs have been crediting 0%, what have SPDAs been getting?

indaville · 10-14-2008, 12:48 PM

Quote:

Originally Posted by JMO Fan

Just curious -- while FIAs have been crediting 0%, what have SPDAs been getting?

I am not sure. What did the SPDAs return when the FIA returned 20% plus percent for some years?

Matt

dannysdad · 10-14-2008, 12:57 PM

Quote:

Originally Posted by indaville

I am not sure. What did the SPDAs return when the FIA returned 20% plus percent for some years?

Matt

That can't be answered because FIA's have never "returned 20% plus for some years."

JMO Fan · 10-14-2008, 01:25 PM

The focus on investment returns is interesting. It's the clearest indication that FIAs are securities.

indaville · 10-15-2008, 02:08 PM

Quote:

Originally Posted by dannysdad

That can't be answered because FIA's have never "returned 20% plus for some years."

In some years FIA's owners have earned 20+%. Not every year but when it happens it helps outset years like this year.

Matt
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Quote:

Originally Posted by JMO Fan

The focus on investment returns is interesting. It's the clearest indication that FIAs are securities.

Interesting comment. Does focusing on the interest rate of one fixed rate annuity versus another fixed rate annuity mean that both annuities should then become securities? If the SEC/FINRA get their way that will be next.

Matt

JMO Fan · 10-15-2008, 05:00 PM

Quote:

Originally Posted by indaville

Does focusing on the interest rate of one fixed rate annuity versus another fixed rate annuity mean that both annuities should then become securities? If the SEC/FINRA get their way that will be next.

Matt

It might surprise some, but comparing interest rates instead of annuity payouts, emphasizing investment returns instead of the insurance aspect, puts products outside of the existing safe harbor, Rule 151. Long ago, part of my job was reviewing marketing material for a major annuity carrier. My primary task was to send the material to the Legal department if the emphasis on interest rates/investment returns was more than 50% of the pitch in the brochure, who would then get the marketing folks to revise to emphasize the insurance aspects, to avoid violating Rule 151.

This basic standard seems to have been forgotten by most annuity sellers. Consider the black eye that AIG got by investing in CDS's, and that the SEC is considered by many to be the negligent regulator. Do you think the SEC will let itself be accused of missing the boat on FIAs?

Many seem to think that pointing out the SEC's past failings will bolster the case against Rule 151A. I think it's the opposite. Finalizing the rule will make the SEC look a lot better to their most valuable constituents: FINRA, broker/dealers, and NASAA.

Charpress · 10-15-2008, 05:14 PM

Besides the people who had no losses this year in FIAs because there is no risk (the definition of investment), what about the folks who played it cagey and decided to go with a fixed rate this year as their strategy? They made 3% while folks in the market in actual "investments" lost 40%.

As I write this, the market is down 722 points. I wish I had sold myself more FIAs this past year.

indaville · 10-15-2008, 05:27 PM

Quote:

Originally Posted by JMO Fan

It might surprise some, but comparing interest rates instead of annuity payouts, emphasizing investment returns instead of the insurance aspect, puts products outside of the existing safe harbor, Rule 151.

Many seem to think that pointing out the SEC's past failings will bolster the case against Rule 151A. I think it's the opposite. Finalizing the rule will make the SEC look a lot better to their most valuable constituents: FINRA, broker/dealers, and NASAA.

I agree emphasizing investment returns in marketing materials by some carriers was out of line. If you look at my original posts I did not bring up returns until asked about it.

Some might view the SEC's current behavior as reasons why the states should continue to regulate insurace products not the SEC/FINRA. I believe the SEC and their position has been weakened by the current market and banking conditions. Why should a regulator that has failed at its' job be given additional responsibilities? In particular a product that has no downside risk and pays a guaranteed interest rate.

Matt

djs · 10-15-2008, 09:00 PM

Quote:

Originally Posted by Charpress

Besides the people who had no losses this year in FIAs because there is no risk (the definition of investment), what about the folks who played it cagey and decided to go with a fixed rate this year as their strategy? They made 3% while folks in the market in actual "investments" lost 40%.

The definition of investment is simply putting money in with the desire to make a profit. Of course, not all investments are regulated, regardless of risk.

Now, I assume what you mean is that 100% of my investment is reasonably safe, but is this true? If I put $100K into an FIA today and then in 6 months needed the money back, would I get $100K? Or would it be something less? If so, then you have risk, and suitability of the investment should be confirmed. The SEC / FINRA is usually concerned about suitability (at least the appearance of) and proper representation. I have no problem with either of these.

The rest of the SEC/FINRA overhead is a pain.....

Dan

xrac · 11-26-2008, 10:15 PM

FINRA can't supervise what they have let alone take on new responsibilities.

http://www.investmentnews.com/apps/p...1094/INDaily01

Will anyone be better off other than the B/D who will make more money and FINRA who will have more power?

Franz Kafka · 11-26-2008, 11:40 PM

IMO the issues with FIAs are NOT whether they are investments. Paying 10K to enter WSOP is an investment if you expect to make a profit. The issue is whether they are SECURITIES. In my faint memory of securities exams I recall securities are either debts (you lend money for interest) or equity (you own something hoping you could later sell for profit). So is FIA a debt or equity??

padthaiforlunch · 11-27-2008, 03:57 AM

Quote:

Originally Posted by djs

The definition of investment is simply putting money in with the desire to make a profit. Of course, not all investments are regulated, regardless of risk.

Now, I assume what you mean is that 100% of my investment is reasonably safe, but is this true? If I put $100K into an FIA today and then in 6 months needed the money back, would I get $100K? Or would it be something less?
Dan

Well if you put it in an equitrust FIA with an ROP rider, then you could pull your premium out at any time.