The SEC Rules Indexed Annuities Are Indeed Securities; Which Companies Will Now Leverage the Obama Success Model?
Written on December 17, 2008
Nothing happens in a vacuum. If it weren’t for Dateline NBC it’s very likely that the SEC wouldn’t have voted today to characterize indexed annuities as securities. You’ll recall Dateline’s “sting” operation featuring hidden cameras and shills posing as annuity prospects. In the post-Dateline environment the SEC apparently could not fail to act. Chairman Cox, after all, kicked-off the Commission’s June 25 open meeting by playing excerpts from the Dateline program. For all practical purposes the mass media exposure of annuity sales practices sealed the fate of indexed annuities as fixed contracts- death by video.
On June 26 I stated that the indexed annuity business would grow in spite of the SEC’s action. I still see it the same. Once again, today’s events are not taking place in a vacuum. The meltdown in the equity markets has driven investors to seek safe money alternatives. The big question for the future of indexed annuities is how product providers choose to respond. Will their worldview change?
Product providers that embrace consumer-oriented contract designs, transparency, innovative marketing technology and quality investor education will be nicely positioned for growth. Such companies will capitalize on the demographically-driven movement of money that craves principal protection combined with upside growth potential. Talk about a perfect context for sales!
Make no mistake; it will take more than a “tweak” to the insurer’s business model. Companies that lead in the next months and years will have seen the need to offer new types of value to both investors and distributors. They’ll race ahead of competitors who cling to the tactics and strategies of the past. They’ll tailor their value proposition to appeal to distributors they never before needed.
Technology, which has historically unleashed so much instability in the annuity industry, is the key to helping the industry reach its full potential. One need only to look at the election of Barack Obama to see the technological /communications model the annuity industry needs to duplicate: succinct expression of its value proposition delivered to a mass audience via technology. Life by video.
What worked for Obama can work for annuities.
©Copyright 2008 David A. Macchia. All rights reserved.
Filed in: Annuity Marketplace Challenges, Uncategorized.
David,
Hope you are doing well. great article
Ray Ohlson
The Dateline segment on EIAs was weak and did not capture the very real tragedy taking place in the inappropriate sales of equity index annuities.
To blame the SEC action on media distortion is weak in its own fashion — and disregards the use of predatory senior marketing techniques, the 14 year “break even” schedules, multi-level marketing abuse that requires a ridiculous level of commissions that in turn produces unconscienable contract fees.
The sale of EIAs with “bonuses” that have no intrinsic value, with market value adjustment features (that when combined with high withdrawal fees) that put credited interest in “double jeopardy” of being forfeit, join to make EIA totally incomprensive to the average prospect.
Granted, the recent market fall makes any product not directly tied to market results look good by comparison — but a majority of the EIA sales are still not reasonably suitable for the customers to whom they are sold.
The industry that makes and sells these products have waged a legal and public relations war against the proposed rule, solely to profit further at the public’s expense.
In Response to David Sanderford,
Thank you for your comment. The less-than-consumer-oriented features of indexed annuity contracts that you reference are widely acknowledged and will continue to disappear over time. It’s really an old rant.
For me, suitability and quality investor education are the important issues. One can be critical of many financial products and the manner in which they are marketed. Do you doubt that many investors felt they would achieve greater benefits than they actually did receive from target date and target income mutual funds? The truth is, all product types have their place. What we need is unbiased education around various products that leaves each industry’s biases behind. Then we can move toward a more strategic framework that beneficially combines the best aspect of different products.
A bigger deal has been made of this EIA as a security thing than necessary. Any agent can just go get an RIA certificate. Its no big deal. You take the series 7 exam (the requirement in most states) and then send about $150 and an application to your state. Within weeks, all of the EIA issuers will offer a fee-based EIA for RIAs. (The RIA certificate also enables the agent to sell fee-based variable annuities and get into the money management business).
Yes, it’s a change from geting the usurious 8% commission up front and instead getting 1% annually, and this is all likely good as it will drive the scum agents who caused this out of the business. If this is too much work or the agent cant pass the series 7 exam, GOOD. He’s not the guy that should be discussing finances with any consumer. Not that I think the SEC is right, but let’s make lemonade out of lemons.