Are EIA's Really That Hard to Understand

I have been reading a lot of commentary lately that accuses EIAs of being extremely complicated and difficult to understand, with the implication, that, perhaps this makes them unsuitable for elderly consumers. Compared to a bank CD, which simply adds the stated interest over the agreed time period, perhaps this accusation may at first appear to be true. But even in the simplicity of CDs, consumers have had to learn the differences between simple and compound interest, and the effects it has on real returns. With any stock or mutual fund, the complexities of the inner workings go up exponentially. Do these people, who accuse EIAs of being so complicated, really believe that the majority of mutual fund purchasers understand the complete workings of all the fees, the risks, the commissions, the full potential for gains AND losses, the strength or weaknesses of the underlying stocks and bonds, or even something as vitally important as the primary investment objectives of the fund? The truth is that people blindly buy securities based upon such feeble information as a feature article they read in a prominent financial magazine or newspaper, a comment by a friend or family member, or the unsupported suggestion of their broker. Often the basis for their interest in a particular fund is so shallow, that if they really understood the full details of how that investment worked, they would know that this fund does not actually achieve what they are looking for. But because every investor receives a prospectus, which is rarely read, it is assumed that they are therefore, fully informed. With EIAs there are complete detailed disclosures required to be provided by the agent, and signed by the purchaser at the time of application. Additionally, the client receives the same complete disclosure information again in the contract when the annuity is issued, with which they are always given a “free look period” of 10-30 days; in order to do all the reading of this detailed information they desire. The new standard that is being called for with EIAs, by its critics in the securities industry, is not just proper disclosure of all facts and details, as is the only requirement with securities products, but, rather, they want certainty of complete client understanding. If insuring understanding is a feature that is to be required of annuity sales, it should also become a requirement for the sale of every securities product. Then, if client’s ultimately only purchase the product they completely understand, I think we will then see just whether it is really the annuities that are complicated, or if it will finally reveal the deceptive veil of confusion with which the securities industry has effectively masked the buying public of securities instruments for years. If a standard of insuring client understanding is then equally applied, before the sale of an annuity OR a security is allowed, it will become quickly evident just how easy to understand annuities really are, compared to ANY security product offered on the market.