NASD Twists Definition of "Risk" to Attack Indexed Annuities

One of the complaints about Indexed Annuities, that has the NASD and others in the securities industry clamoring for control of the sale of these products, is in their suggestion that indexed annuities carry similar risk to variable annuities and other securities. In an article from the NASD web site posted July 30, 2005, entitled Equity Indexed Annuities-A Complex Choice, they indicate that since the return on an indexed annuity varies, the indexed annuity carries some risk, but less risk than a variable annuity. Taking a quote from approved study material, published by the Securities Training Corporation, used in preparation for the test to become series 7 registered, the definition of "risk" is "the potential for loss of an investment due to many factors including, inflation, interest rates, default, politics, foreign exchange, call provisions, etc." The missing fact that EVERY argument AGAINST indexed annuities fails to include is that the principal of an indexed annuity is not subject to loss from those factors and therefore, indexed annuities do not carry market risk. If you apply the correct definition of "risk" to securities, such as variable annuities, mutual funds, stocks, and even bonds, you quickly understand that the value of the original investment CAN and DOES go down due to fluctuations in market conditions. In an indexed annuity, however, the worse that can happen in a declining market is no growth and no interest credits for that period, but the principal value is contractually guaranteed, as well as, in most cases, all previously credited interest. Simply put, risk involves loss of value, the very negative characteristic of securities that indexed annuities were designed to overcome, and that is what has made them so appropriate and so appealing to millions of retirees.