If you are reading this blog, you should already know my position on EIAs and my take on the buzz that has surrounded them in recent years. If not, go back and read some of the previous posts and you will find that I am a strong supporter of the current use and present regulation of EIAs and believe that when used properly, they are a valuable financial tool for use with any age market, especially seniors.
Having said that, I want to address ALL agents who are currently selling indexed annuities and I hope that you take seriously what I am about to say. I recently wrote my own state insurance commissioner about my concerns why insurance departments are not being more vocal in defense of the measures they have already put into place to govern the proper sale and use of indexed annuities. I received a personal response from him rather quickly, and it provided me a slight change in my view of this entire issue.
The most shocking comments I read in his response was that he DOES believe there is a crisis in the sales activities of agents, and that his office, the Attorney General, and the Secretary of State Securities Division are opening numerous cases from complaints involving the lack of adequate disclosure with clients, and even some predatory activities of agents for all types of annuity sales, including indexed annuities.
This disturbing news brings the blame back to only one place, in my opinion, and that is with any agent who crosses the line and is less than truthful in describing and disclosing the full details about the products they are selling, is promoting a blanket product solution, without understanding the complete financial needs and concerns of their client, or in any other way is deceiving the client about the full impact of their actions. False statements are not the only way to leave the wrong impression and mislead a client. Failure to give them, or sometimes point out, important information, is JUST as wrong as saying something that is not true or clear. For instance, if you fail to encourage them to review their contract carefully when you first deliver it, because you are hoping the “free look” period will expire before they can raise any concerns or questions so you won’t lose the sale, you are still deceiving them by way of omission.
The entire insurance industry is built upon nothing more than the promises made by the companies we represent and whose products we sell. Think about it. For all the money a client turns over when they buy an annuity, ALL they get back to hold in their hands is a piece of paper which details the promises made by a company they never see, other than through us. If WE break the trust of the prospects and clients we see, then we are actually harming EVERY SINGLE AGENT out there as we lower the confidence of the public about the integrity of buying insurance products. While I know that most agents ARE trying to do a good job, unfortunately, it does not matter if you intentionally or accidentally made a bad recommendation, or failed to provide the client the level of information they needed to be comfortable about their decision. If a client complains to the insurance department about YOU, your livelihood is on the line. If enough of these complaints are made, as indicated by the letter from my insurance commissioner, then all of our livelihoods are on the line.
Let’s be more proactive as insurance agents. If you know of questionable sales activities in your area, don’t be afraid to do some self policing of your territory. Ultimately, doing nothing can have more impact on your business than you care to admit. Individually, I challenge each agent to review every sales action you currently use, and clean up your act. Go to your FMO, your GA, or whoever you view as having some supervision above you, and ask them for help in reviewing the professional and ethical methods of your sales practices. If you have a peer in the business, use each other to more objectively figure out if you have problems that need to be changed. Join professional organizations and become involved in community work, to keep you more focused on the needs of others and less concerned about what is in it for you.
The alternative is that we will only see more paperwork required, more regulatory intervention into our businesses, or worse, we may lose the ability to sell these products at all with just an insurance license and will have to become registered or otherwise further licensed in some way. With further licensing requirements come more opportunities where we will face considerably more oversight and the potential for fines and penalties for all levels of infractions. If we, as agents do everything we can do individually to STOP the concerns of sales practices of indexed annuities from arising in the first place, then we may avoid some of the more serious adjustments that I can assure you are inevitable, if nothing else changes
Wednesday, June 28, 2006
WIll Someone PLEASE Shut That Man Up?
InvestmentNews.com recently featured an article whose Headline read, NASD eyes regulation of insurance products. The opening statement of this article is that the NASD "continues to press for more clarity in the oversight of insurance products." If you have been following the comments of NASD chairman and Chief Executive, Robert Glauber, you know that this headline about sums it all up, and the opening sentence clearly identifies the intentions of the NASD are to force their way into the insurance business no matter what it takes. Glauber’s repeated use of the precise statement about equity indexed annuities being a "jump ball" because "no one seems to know whether they are a security or insurance product," is his continued effort to justify his intrusion into a complete industry in which he has no authority or jurisdiction.
In spite of what Glauber keeps repeating, equity indexed annuities are a pure insurance product. That leaves ALL of the regulation of every aspect about them to the individual state insurance departments, headed by a different elected insurance commissioner for each and every state. Within each state, the licensing and supervision of agents who are allowed to sell indexed annuities, the approval of the companies who offer them, the approval of the products and their specific features and designs, along with all sales literature, forms, and paperwork required to be used with buyers, and the handling of all concerns and complaints by consumers, is all under the jurisdiction of the state insurance department in which the product is being sold.
It could not be clearer than this. The only person who keeps raising any question about the identity of indexed annuities and who should be regulating them is Glauber. And in so doing, he is insulting each insurance commissioner from every state, the entire staff of every department that works so hard to provide the review, the approval, and the oversight of the dozens of companies and products who offer them; and every licensed insurance agent who is following each procedure and sales process honestly and professionally when they present and offer indexed annuities to their clients.
Since it only takes an insurance license to sell indexed annuities, Glauber’s only chance at getting back the hundreds of millions his NASD members and broker dealers have lost to these popular insurance products, is to attempt to confuse their identity in his efforts to garner control of them. It reminds me of the political joke about, if it walks like a duck, and quacks like a duck, then it must be a duck. Indexed annuities are pure insurance products and no matter how much Glauber tries to suggest they are otherwise, their true identity is clear to every insurance department and agent in the country. In addition to his constant statements that erroneously and illegally call indexed annuities securities, he also has resorted to harassing every properly licensed insurance agent who is also a registered representative and offers indexed annuities, by trying to scare them into either ceasing sale of them, or intimidating them into believeing that they should only access them only through their broker dealer, when they are actually free to go directly to the issuing company, or use any GA or FMO they desire, to access ANY insurance products they are duly licensed to sell.
It is time for Glauber to cease his attacks on the insurance industry, and spend that effort and energy to clean up the securities industry. Remember the proverb about trying to remove the speck in your neighbors eye, when you have a log in your own eye. Glauber would do well to take note and heed this bit of wisdom. If he wants to protect investors, there is plenty he can do in his own industry. Perhaps after he retires from the NASD, he may want to run for insurance commissioner in some state and maybe then he will finally come to understand about the difference between insurance products and securities, and the real function and purpose for keeping regulation of each insurance department separated by state.
In spite of what Glauber keeps repeating, equity indexed annuities are a pure insurance product. That leaves ALL of the regulation of every aspect about them to the individual state insurance departments, headed by a different elected insurance commissioner for each and every state. Within each state, the licensing and supervision of agents who are allowed to sell indexed annuities, the approval of the companies who offer them, the approval of the products and their specific features and designs, along with all sales literature, forms, and paperwork required to be used with buyers, and the handling of all concerns and complaints by consumers, is all under the jurisdiction of the state insurance department in which the product is being sold.
It could not be clearer than this. The only person who keeps raising any question about the identity of indexed annuities and who should be regulating them is Glauber. And in so doing, he is insulting each insurance commissioner from every state, the entire staff of every department that works so hard to provide the review, the approval, and the oversight of the dozens of companies and products who offer them; and every licensed insurance agent who is following each procedure and sales process honestly and professionally when they present and offer indexed annuities to their clients.
Since it only takes an insurance license to sell indexed annuities, Glauber’s only chance at getting back the hundreds of millions his NASD members and broker dealers have lost to these popular insurance products, is to attempt to confuse their identity in his efforts to garner control of them. It reminds me of the political joke about, if it walks like a duck, and quacks like a duck, then it must be a duck. Indexed annuities are pure insurance products and no matter how much Glauber tries to suggest they are otherwise, their true identity is clear to every insurance department and agent in the country. In addition to his constant statements that erroneously and illegally call indexed annuities securities, he also has resorted to harassing every properly licensed insurance agent who is also a registered representative and offers indexed annuities, by trying to scare them into either ceasing sale of them, or intimidating them into believeing that they should only access them only through their broker dealer, when they are actually free to go directly to the issuing company, or use any GA or FMO they desire, to access ANY insurance products they are duly licensed to sell.
It is time for Glauber to cease his attacks on the insurance industry, and spend that effort and energy to clean up the securities industry. Remember the proverb about trying to remove the speck in your neighbors eye, when you have a log in your own eye. Glauber would do well to take note and heed this bit of wisdom. If he wants to protect investors, there is plenty he can do in his own industry. Perhaps after he retires from the NASD, he may want to run for insurance commissioner in some state and maybe then he will finally come to understand about the difference between insurance products and securities, and the real function and purpose for keeping regulation of each insurance department separated by state.
Monday, June 12, 2006
Why Isn’t LTC Insurance Getting the Same Critical Attention as Annuities?
As I scour all the industry news sources every morning looking for articles to inspire a new blog, I search for the word annuity to appear. Many days I find nothing at all mentioned about annuities. Most days there are some comments about retirement issues in general, but nearly every day there are some articles about Long Term Care (LTC) insurance. These articles are usually about how some company is creating a new version of this product; some reference to how important LTC insurance will be to a secure retirement for baby boomers; or, how planners need to become more fluent in their understanding of these products to make sure they cover all bases.
The thing I find interesting is the lack of critical comments about LTC insurance products. Don’t misunderstand me, I am a strong proponent of this product, and for five years I was a company rep for CNA, then one of the industry leaders in selling a series of top quality policies, where I trained agents in the importance and the techniques of selling LTC insurance. There is a saying that if you really want to understand something, teach it to someone else. During that time, I became a LTC expert, and I found the main reason most agents shy away from offering LTC insurance is that they are intimidated by the intricacies of the product, and they fear they will not be able to adequately explain it in a sales setting.
The reason I mention this is that I want to compare the sale of LTC insurance to that of annuities. Both are sold primarily to the senior market. Both are insurance products that are designed to protect a senior’s assets and provide a degree of control and management to the unpredictability of retirement financial obstacles. Both contain a degree of complexity in their inner workings that require explanation, and the subtle variations in product features from one company to the next can be overwhelming and requires an in depth comparison of all the features to fully understand the differences. And LTC insurance forms have long included a simple suitability statement that effectively puts the burden of the financial appropriateness of the sale on the buyer, and even allows them to purchase the product against the recommendation of the agent, simply by checking a particular box on the form.
Yet, I cannot recall EVER reading of one complaint voiced by the NASD or any other securities regulatory agency about LTC insurance in the way they regularly do about annuities. Given the very similar natures of both products, you would think that if the motivation of the NASD were truly for the concern of the senior buyer, they would be concerned for ALL financial products offered to seniors. But the truth is that the sale of LTC insurance does not directly dip into the pockets of NASD members and broker dealers. Fixed and indexed annuity sales often result in the liquidation of brokerage accounts and moving money from broker dealers to insurance companies. Long Term Care insurance premiums are often paid from current or interest income, but usually do not result in the liquidation of huge blocks of securities business.
So, the bottom line here is that this disparity in the interest of the NASD between these two insurance products is easily identified as a purely financial motivation. Once again, it is clear that the issues the NASD has with indexed annuities are not about the safety and security of the buying public, as it wants us to believe, but it is ALL ABOUT THE MONEY.
The thing I find interesting is the lack of critical comments about LTC insurance products. Don’t misunderstand me, I am a strong proponent of this product, and for five years I was a company rep for CNA, then one of the industry leaders in selling a series of top quality policies, where I trained agents in the importance and the techniques of selling LTC insurance. There is a saying that if you really want to understand something, teach it to someone else. During that time, I became a LTC expert, and I found the main reason most agents shy away from offering LTC insurance is that they are intimidated by the intricacies of the product, and they fear they will not be able to adequately explain it in a sales setting.
The reason I mention this is that I want to compare the sale of LTC insurance to that of annuities. Both are sold primarily to the senior market. Both are insurance products that are designed to protect a senior’s assets and provide a degree of control and management to the unpredictability of retirement financial obstacles. Both contain a degree of complexity in their inner workings that require explanation, and the subtle variations in product features from one company to the next can be overwhelming and requires an in depth comparison of all the features to fully understand the differences. And LTC insurance forms have long included a simple suitability statement that effectively puts the burden of the financial appropriateness of the sale on the buyer, and even allows them to purchase the product against the recommendation of the agent, simply by checking a particular box on the form.
Yet, I cannot recall EVER reading of one complaint voiced by the NASD or any other securities regulatory agency about LTC insurance in the way they regularly do about annuities. Given the very similar natures of both products, you would think that if the motivation of the NASD were truly for the concern of the senior buyer, they would be concerned for ALL financial products offered to seniors. But the truth is that the sale of LTC insurance does not directly dip into the pockets of NASD members and broker dealers. Fixed and indexed annuity sales often result in the liquidation of brokerage accounts and moving money from broker dealers to insurance companies. Long Term Care insurance premiums are often paid from current or interest income, but usually do not result in the liquidation of huge blocks of securities business.
So, the bottom line here is that this disparity in the interest of the NASD between these two insurance products is easily identified as a purely financial motivation. Once again, it is clear that the issues the NASD has with indexed annuities are not about the safety and security of the buying public, as it wants us to believe, but it is ALL ABOUT THE MONEY.
Friday, June 09, 2006
Not Concerned About the NASD? You SHOULD Be!
If you are an agent holding seminars in order to meet new prospects for your senior financial business, it is important that you pay close attention to the clamor that is going on in the media about how luncheon seminars are being used to deceptively sell inappropriate investments to seniors. While I am sure that the majority of seminar sponsors are attempting to follow the appropriate regulations for their type of license or registration, there are some areas you may still be missing.
Agents who are securities licensed have come under extreme scrutiny by the NASD and their broker/dealers for their “non-securities” business, such as the sale of insurance products like fixed and indexed annuities. While the sale of non-registered insurance products are not under the jurisdiction of any securities regulators, the general outside business and ethical practices of registered agents are within some grasp of the NASD and an agent’s broker/ dealer through a number of back door means of discipline. If you don’t believe me, just ask those agents in Massachusetts who were fined and strongly disciplined by the securities regulators when they were promoting indexed annuities through seminars, but because of their registration, they failed to meet all the compliance requirements of sales materials. It is extremely important to check with your broker/dealer for proper compliance requirements for EVERY SINGLE WORD you provide in print or speak to prospects and clients.
Insurance agents who are not securities registered and are only selling pure insurance products may feel they are out of reach of the SEC and the NASD. If that agent is using the proper presentation of financial concepts at seminars and in client interviews that fully discloses the character and nature of indexed annuities as an insurance product, and does not venture off topic, then that is true. But the warning to these insurance agents comes from their possible misuse of terminology and in their illegal comments and evaluations of registered securities' products.
Many have been fighting very hard to maintain the insurance definition of indexed annuities and keep them out of the control of the NASD. But when an agent refers to an indexed annuity as an “investment,” or decides to embellish his descriptions with a few words about how they work that imply that the returns of indexed annuities are “tied to the stock market,” or that you can get “market, or market-like returns,” then this agent is stepping over the boundary of properly identifying an indexed annuity as an insurance product and is implying that it is some kind of investment.
The earnings on an indexed annuity is INTEREST, that just happens to be credited by using the “change” in the measurement of the related index as the measuring stick to determine how much interest is credited in any given period. To refer to the earnings in any other way could be construed as a false representation of an insurance product as a type of investment.
Non-registered agents also need to be careful to what extent you can refer to information regarding the stock market or mutual fund performance. This line is critical and if you cross it, you can find yourself suddenly subject to the authority of the SEC for practicing securities business without the proper registration. Whether they have the full right to intervene or not may be of little concern once you have been publicly humiliated and your local or regional reputation ruined.
When you recommend a client liquidate investment assets and move them into annuities, it may be construed as a violation of SEC law, especially if you provide any opinion about the investments themselves or if your actions hint at you acting as a registered investment advisor without that designation. The fine line of difference between recommending the purchase of an indexed annuity versus the specific recommendation to liquidate securities in order to do so, may only be in the difference of a word or two, but it could make all the difference as to whether you are breaking any laws. My suggestion is that you contact your FMO or general agent, to provide you with “written” explanation about any areas of question you may have regarding what specific comments you are allowed or disallowed to make regarding investments.
Remember the old adage, an ounce of prevention is worth a pound of cure.
Agents who are securities licensed have come under extreme scrutiny by the NASD and their broker/dealers for their “non-securities” business, such as the sale of insurance products like fixed and indexed annuities. While the sale of non-registered insurance products are not under the jurisdiction of any securities regulators, the general outside business and ethical practices of registered agents are within some grasp of the NASD and an agent’s broker/ dealer through a number of back door means of discipline. If you don’t believe me, just ask those agents in Massachusetts who were fined and strongly disciplined by the securities regulators when they were promoting indexed annuities through seminars, but because of their registration, they failed to meet all the compliance requirements of sales materials. It is extremely important to check with your broker/dealer for proper compliance requirements for EVERY SINGLE WORD you provide in print or speak to prospects and clients.
Insurance agents who are not securities registered and are only selling pure insurance products may feel they are out of reach of the SEC and the NASD. If that agent is using the proper presentation of financial concepts at seminars and in client interviews that fully discloses the character and nature of indexed annuities as an insurance product, and does not venture off topic, then that is true. But the warning to these insurance agents comes from their possible misuse of terminology and in their illegal comments and evaluations of registered securities' products.
Many have been fighting very hard to maintain the insurance definition of indexed annuities and keep them out of the control of the NASD. But when an agent refers to an indexed annuity as an “investment,” or decides to embellish his descriptions with a few words about how they work that imply that the returns of indexed annuities are “tied to the stock market,” or that you can get “market, or market-like returns,” then this agent is stepping over the boundary of properly identifying an indexed annuity as an insurance product and is implying that it is some kind of investment.
The earnings on an indexed annuity is INTEREST, that just happens to be credited by using the “change” in the measurement of the related index as the measuring stick to determine how much interest is credited in any given period. To refer to the earnings in any other way could be construed as a false representation of an insurance product as a type of investment.
Non-registered agents also need to be careful to what extent you can refer to information regarding the stock market or mutual fund performance. This line is critical and if you cross it, you can find yourself suddenly subject to the authority of the SEC for practicing securities business without the proper registration. Whether they have the full right to intervene or not may be of little concern once you have been publicly humiliated and your local or regional reputation ruined.
When you recommend a client liquidate investment assets and move them into annuities, it may be construed as a violation of SEC law, especially if you provide any opinion about the investments themselves or if your actions hint at you acting as a registered investment advisor without that designation. The fine line of difference between recommending the purchase of an indexed annuity versus the specific recommendation to liquidate securities in order to do so, may only be in the difference of a word or two, but it could make all the difference as to whether you are breaking any laws. My suggestion is that you contact your FMO or general agent, to provide you with “written” explanation about any areas of question you may have regarding what specific comments you are allowed or disallowed to make regarding investments.
Remember the old adage, an ounce of prevention is worth a pound of cure.
In Defense of the “FREE LUNCH” Seminar
The National Ethics Bureau recently issued a Red Flag Reminder about Government Regulators “Hungry” for Senior “Free Lunches.” I have read references in a number of articles lately that insinuate that if an agent is holding luncheon seminars in order to meet new prospects for their senior financial business, then that SHOULD be a red flag as to their legitimacy and ethics. The fact that this notice is given in the first place is indication enough that there are growing critics who would seek to eliminate, or somehow control the marketing methods an agent chooses to use.
The core of this issue reminds me of the discussion about gun control. The question is whether it is the “free lunch” seminar that is the problem; or, if it is the few agents who choose to use the medium of seminars to fraudulently further their business with misleading information and deceptive business practices. I am all for eliminating the con artists from this industry, since this is a business of trust. The more reputable ALL agents are perceived; the better it will be for everyone. But let’s don’t throw out the baby with the bath water. The luncheon seminar is good for both agent AND seniors.
I find the claims by critics of the luncheon seminar, that simply by filling up the stomachs of seniors they will drop all of their good judgment and somehow lose their ability to evaluate financial decisions for themselves, is a naïve and offensive insinuation. Contrary to the indications in the Red Flag Reminder, the purpose of a financial seminar presented to seniors is NOT education. At least, it is not for the purpose of educating anyone about a particular financial topic. In fact, agents who attempt to provide too MUCH information about some financial concepts will more often do harm than good when attendees believe they have received enough information to make informed decisions and take action on their own. The seminar should merely open up awareness to important topics with the identification of potential problem areas, and the suggestion of possible solutions; but always with the clarification that each person’s financial situation is different and must be carefully evaluated by a professional before suitablity can be determined, and that more detailed information is required before any major decisions should be made.
But the real value of the seminar, lunch or not, is that it allows the senior attendee to privately and anonymously evaluate the agent who is speaking, BEFORE they decide if they want to consent to an individual consultation with them or disclose any personal financial information. At the same time, for the agent, it allows them to reach a large number of qualified people at one time, and THEN only have to spend time individually with the ones who specifically have a stated interest in discussing their detailed financial affairs further with the agent.
The intrusion of the government into the use of seminars as an introductory marketing method is a discriminatory affront to the thousands of honest financial professionals who use them and are diligently working hard to provide the best service possible for their clients and are simply attempting to expand their client base. All industries have used seminars, including legal, financial, investment, as well as insurance. Each industry has the interest and the means to supervise the resulting business practices of the seminar sponsors. Rather than attack the seminar as a structure, why not focus more on the inappropriate business and trade practices? Lets go after the con artists and leave legitimate business professionals alone.
The core of this issue reminds me of the discussion about gun control. The question is whether it is the “free lunch” seminar that is the problem; or, if it is the few agents who choose to use the medium of seminars to fraudulently further their business with misleading information and deceptive business practices. I am all for eliminating the con artists from this industry, since this is a business of trust. The more reputable ALL agents are perceived; the better it will be for everyone. But let’s don’t throw out the baby with the bath water. The luncheon seminar is good for both agent AND seniors.
I find the claims by critics of the luncheon seminar, that simply by filling up the stomachs of seniors they will drop all of their good judgment and somehow lose their ability to evaluate financial decisions for themselves, is a naïve and offensive insinuation. Contrary to the indications in the Red Flag Reminder, the purpose of a financial seminar presented to seniors is NOT education. At least, it is not for the purpose of educating anyone about a particular financial topic. In fact, agents who attempt to provide too MUCH information about some financial concepts will more often do harm than good when attendees believe they have received enough information to make informed decisions and take action on their own. The seminar should merely open up awareness to important topics with the identification of potential problem areas, and the suggestion of possible solutions; but always with the clarification that each person’s financial situation is different and must be carefully evaluated by a professional before suitablity can be determined, and that more detailed information is required before any major decisions should be made.
But the real value of the seminar, lunch or not, is that it allows the senior attendee to privately and anonymously evaluate the agent who is speaking, BEFORE they decide if they want to consent to an individual consultation with them or disclose any personal financial information. At the same time, for the agent, it allows them to reach a large number of qualified people at one time, and THEN only have to spend time individually with the ones who specifically have a stated interest in discussing their detailed financial affairs further with the agent.
The intrusion of the government into the use of seminars as an introductory marketing method is a discriminatory affront to the thousands of honest financial professionals who use them and are diligently working hard to provide the best service possible for their clients and are simply attempting to expand their client base. All industries have used seminars, including legal, financial, investment, as well as insurance. Each industry has the interest and the means to supervise the resulting business practices of the seminar sponsors. Rather than attack the seminar as a structure, why not focus more on the inappropriate business and trade practices? Lets go after the con artists and leave legitimate business professionals alone.
Tuesday, June 06, 2006
MassMutual's Innovative New Variable Annuity is a Wolf In Sheep’s Clothing
MassMutual has just introduced a new Variable Annuity product called Equity Edge. That may not seem like news, since nearly every single insurance carrier already offers variable annuities, a hybrid of insurance and securities features (which are often confused with indexed annuities, which are NOT securities but are pure insurance products.) So, what is new about the MassMutual product?
Previously, most variable annuities, regardless of the company who issued them, were similarly structured. In exchange for the ability to choose the underlying investment options and with the potential for market gains, the client assumed ALL investment risk on the value of a variable annuity. The only guarantee in these products was usually a death benefit, for which the client actually paid anyway as an expense deducted regularly from the contract principle to purchase term life insurance. Therefore, the big draw to variable annuities was the high market-based potential return aspects of the securities side, that were also tax deferred as part of the insurance aspects of the product. When the market was rising, those gains could be comfortably deferred inside the annuity and the client could enjoy additional compounding on the earnings they otherwise would lose annually to pay taxes.
For this reason variable annuities became very popular during the huge market increases of the late 90’s. But when the market began to correct in 2000, clients learned that the contract really DID NOT guarantee the account value, and many people suddenly were sitting on an annuity whose value was worth only a fraction of their original deposit. This dissatisfaction in the performance of these products has lead to some variations of variable annuities, the latest of which is this MassMutual version.
The common element of any changes in variable annuities involves the appearance of guarantees. One such product was so confusing that agents themselves were telling clients the product had an underlying guarantee of a fixed rate, at the time about 7%, with the potential of earning more if the market did well. What the truth was, however, was much different. The client only received the guaranteed interest IF, and only IF they left their money in the contract for the full 10 year deferral period followed by a required 10 year systematic withdrawal. When you did the math, essentially what you got was about a 3 ½ % overall return, and then only if you were willing to wait 20 years to get it. Amazingly, this product has been voluntarily withdrawn from the market.
The MassMutual product has similar illusory elements that must be mentioned to avoid client deception. It is called a simplified variable annuity, which in this case means much of the typical flexibility and a number of client options are simply removed. In other words, in the MassMutual product the benefit period is absolute or all guarantees are off. For instance, if someone selects a 10 year period, if for any reason they must withdraw their money before the 10 years is up, they receive NONE of the guaranteed benefits. Ironically one of the simplifications also removes all direction of investment choices from the buyer, previously one of the major selling points of variable annuities. Instead, the product is designed to be managed by MassMutual to integrate fixed interest earnings with equity investments and rebalance them each year in order to attempt to mimic the returns of the S&P 500 on the investement side, with a minimal attempt to just simply preserve the original principle of the entire account.
If you carefully examine it, this product seems remarkable structured like all of the negative aspects that indexed annuities are confusingly accused of having by those who are critical of them, but really don’t. Considering that with an indexed annuity over the contract term you can also get the general potential performance of the S&P 500, BUT the client retains the guaranteed return of 100% of their principle AND a minimum guaranteed interest return, regardless of how the market performs. In addition, with an indexed annuity your gains are locked in annually, and you have penalty free withdraws, usually in the amount of 10% per year throughout the surrender period. If they need more than the penalty free withdrawal, the client can always access whatever amount they need, usually without affecting previous earnings, but simply by paying the applicable surrender charge only on the amount withdrawn over the free amount. Indexed annuities also usually carry a nursing home waiver where in extreme circumstances, such as a nursing home stay, the free withdrawal is increased, or the early withdrawal penalty is removed altogether.
It is clear to me that the MassMutual product is a poor attempt to mimic what the uniformed believes indexed annuities to be on the surface, without really understanding them or how they work. But by missing the REAL features that make an indexed annuity the very appealing and valuable retirement vehicle it is, this MassMutual product is just a piece of crap, and the only way it can be sold is to some unsuspecting buyer who simply trusts the agent or the product because of the MassMutual name. If only that same person was able to have any of the many good indexed annuities to compare to, they would wisely choose the indexed annuity over this MassMutual variable annuity every time.
Previously, most variable annuities, regardless of the company who issued them, were similarly structured. In exchange for the ability to choose the underlying investment options and with the potential for market gains, the client assumed ALL investment risk on the value of a variable annuity. The only guarantee in these products was usually a death benefit, for which the client actually paid anyway as an expense deducted regularly from the contract principle to purchase term life insurance. Therefore, the big draw to variable annuities was the high market-based potential return aspects of the securities side, that were also tax deferred as part of the insurance aspects of the product. When the market was rising, those gains could be comfortably deferred inside the annuity and the client could enjoy additional compounding on the earnings they otherwise would lose annually to pay taxes.
For this reason variable annuities became very popular during the huge market increases of the late 90’s. But when the market began to correct in 2000, clients learned that the contract really DID NOT guarantee the account value, and many people suddenly were sitting on an annuity whose value was worth only a fraction of their original deposit. This dissatisfaction in the performance of these products has lead to some variations of variable annuities, the latest of which is this MassMutual version.
The common element of any changes in variable annuities involves the appearance of guarantees. One such product was so confusing that agents themselves were telling clients the product had an underlying guarantee of a fixed rate, at the time about 7%, with the potential of earning more if the market did well. What the truth was, however, was much different. The client only received the guaranteed interest IF, and only IF they left their money in the contract for the full 10 year deferral period followed by a required 10 year systematic withdrawal. When you did the math, essentially what you got was about a 3 ½ % overall return, and then only if you were willing to wait 20 years to get it. Amazingly, this product has been voluntarily withdrawn from the market.
The MassMutual product has similar illusory elements that must be mentioned to avoid client deception. It is called a simplified variable annuity, which in this case means much of the typical flexibility and a number of client options are simply removed. In other words, in the MassMutual product the benefit period is absolute or all guarantees are off. For instance, if someone selects a 10 year period, if for any reason they must withdraw their money before the 10 years is up, they receive NONE of the guaranteed benefits. Ironically one of the simplifications also removes all direction of investment choices from the buyer, previously one of the major selling points of variable annuities. Instead, the product is designed to be managed by MassMutual to integrate fixed interest earnings with equity investments and rebalance them each year in order to attempt to mimic the returns of the S&P 500 on the investement side, with a minimal attempt to just simply preserve the original principle of the entire account.
If you carefully examine it, this product seems remarkable structured like all of the negative aspects that indexed annuities are confusingly accused of having by those who are critical of them, but really don’t. Considering that with an indexed annuity over the contract term you can also get the general potential performance of the S&P 500, BUT the client retains the guaranteed return of 100% of their principle AND a minimum guaranteed interest return, regardless of how the market performs. In addition, with an indexed annuity your gains are locked in annually, and you have penalty free withdraws, usually in the amount of 10% per year throughout the surrender period. If they need more than the penalty free withdrawal, the client can always access whatever amount they need, usually without affecting previous earnings, but simply by paying the applicable surrender charge only on the amount withdrawn over the free amount. Indexed annuities also usually carry a nursing home waiver where in extreme circumstances, such as a nursing home stay, the free withdrawal is increased, or the early withdrawal penalty is removed altogether.
It is clear to me that the MassMutual product is a poor attempt to mimic what the uniformed believes indexed annuities to be on the surface, without really understanding them or how they work. But by missing the REAL features that make an indexed annuity the very appealing and valuable retirement vehicle it is, this MassMutual product is just a piece of crap, and the only way it can be sold is to some unsuspecting buyer who simply trusts the agent or the product because of the MassMutual name. If only that same person was able to have any of the many good indexed annuities to compare to, they would wisely choose the indexed annuity over this MassMutual variable annuity every time.
NASD Needs to Concentrate on the Proverbial Log In Their Own Eye
I do not understand why the NAIC is not up in arms at the continued slams by NASD chairman, Robert Glauber about their job of regulating fixed and indexed annuities. A quick factual study of the consumer complaints regarding indexed annuities will reveal that these products have the least number of complaints of any other insurance product. So why isn’t Glauber concerned about other insurance products? BECAUSE OTHER INSURANCE PRODUCTS AREN’T TAKING BILLIONS OF DOLLARS OF ASSETS OUT OF THE CONTROL OF BROKER DEALERS!
It was recently reported that the complaints that were made against indexed annuities were not in reference to the product performance, but regarding something about the sales process. With $25 billion in sales last year, I am sure that there are some cases where the agent did not do a good job of explaining the product details or recommending the best product to the client. Still, in each of those cases, if you looked at the facts, it would be found that regardless of what the client claims regarding their questions and confusion, ALL of the product details WERE FULLY DISCLOSED, if not in the agent interview, at least in the required paperwork every client must sign upon application. Then, once again every legal commitment that the client AND the insurance company agree to is furnished upon delivery in the actual contract, where a state mandated “free look” period gives ANY client adequate time to read, review, get outside input, or whatever they need in order to make sure of their decision, and if during this period they are dissatisfied for ANY reason, they can get out of the contract without incurring any cost or penalty.
What comes to mind here is the familiar proverbial passage about the human tendency to find the speck in someone else’s eye when there may be a log in their own eye. For their own financial reasons, the NASD is conveniently finding fault in the sale of indexed annuities, while their own industry is filled with misconduct, fraud, deceit, and mismanagement. There are numerous instances of the mutual funds themselves being bogus; the information provided by the brokers to clients being wrong, the financial reporting of the underlying companies that affect stock and fund values being falsified, or the client’s money being fraudulently stolen in schemes. Besides these obvious illegal activities, we all know the sales habits of brokers to “churn” accounts simply to generate a commission for themselves, all under the guise of making “recommendations.” Investors have been so conditioned NOT to hold their broker accountable for their bad advice, that the securities industry has averted potentially thousands, if not millions of consumer complaints; only because consumers have learned to simply accept losses in their investment account value as part of being in the market. Yet, these same brokers want the credit if their client’s make gains in their accounts.
This double standard by the NASD is a skillful manipulation of the public attention away from the many problems in the securities industry. The underlying goal of Glauber and his cronies is not just redirection, however, but to garner control over indexed annuities and bring those billions in lost assets back to broker dealers, and thus hundreds of millions in lost commissions.
It was recently reported that the complaints that were made against indexed annuities were not in reference to the product performance, but regarding something about the sales process. With $25 billion in sales last year, I am sure that there are some cases where the agent did not do a good job of explaining the product details or recommending the best product to the client. Still, in each of those cases, if you looked at the facts, it would be found that regardless of what the client claims regarding their questions and confusion, ALL of the product details WERE FULLY DISCLOSED, if not in the agent interview, at least in the required paperwork every client must sign upon application. Then, once again every legal commitment that the client AND the insurance company agree to is furnished upon delivery in the actual contract, where a state mandated “free look” period gives ANY client adequate time to read, review, get outside input, or whatever they need in order to make sure of their decision, and if during this period they are dissatisfied for ANY reason, they can get out of the contract without incurring any cost or penalty.
What comes to mind here is the familiar proverbial passage about the human tendency to find the speck in someone else’s eye when there may be a log in their own eye. For their own financial reasons, the NASD is conveniently finding fault in the sale of indexed annuities, while their own industry is filled with misconduct, fraud, deceit, and mismanagement. There are numerous instances of the mutual funds themselves being bogus; the information provided by the brokers to clients being wrong, the financial reporting of the underlying companies that affect stock and fund values being falsified, or the client’s money being fraudulently stolen in schemes. Besides these obvious illegal activities, we all know the sales habits of brokers to “churn” accounts simply to generate a commission for themselves, all under the guise of making “recommendations.” Investors have been so conditioned NOT to hold their broker accountable for their bad advice, that the securities industry has averted potentially thousands, if not millions of consumer complaints; only because consumers have learned to simply accept losses in their investment account value as part of being in the market. Yet, these same brokers want the credit if their client’s make gains in their accounts.
This double standard by the NASD is a skillful manipulation of the public attention away from the many problems in the securities industry. The underlying goal of Glauber and his cronies is not just redirection, however, but to garner control over indexed annuities and bring those billions in lost assets back to broker dealers, and thus hundreds of millions in lost commissions.
Glauber, Head of NASD, Loves the Assumptive Close
In a lengthy article I recently read in Financial-Planning.com, entitled “NASD Agenda: Regulatory Harmony for Annuities,” the primary focus of the article is actually on the efforts of the NASD to address the problems with honesty and credibility we all have read about in the securities industry over the past number of years, such as deceptive mutual fund sales disclosure, improper fund management and doctored reporting. According to the article, items on the NASD agenda also include the “harmonization of rules governing fixed, variable and equity indexed annuities.” Glauber once again took this pubic opportunity to breach the boundaries of the NASD authority and make intruding comments about insurance products to which he has no jurisdiction whatsoever.
The article continues that the NASD is “considering the possible integration of regulations for popular financial products…fixed, variable and equity indexed annuities.” Can’t anyone put Glauber in his place and remind him that not only does he not have the right to insist on regulatory changes for fixed and indexed annuities; he does not have the NEED to do so? But once again, by making his regular statements about the need for uniformity of regulation over variable annuities, (which are a securities product), and fixed and indexed annuities, (which are NOT securities products but are insurance products), by making his comments assumptively, as if he had some authority to do so, he is attempting to condition the pubic to assume that he and the NASD do have some power over indexed annuities. But in truth, he is continuing to stick his nose into business for which he has no reason to get involved; unless you are concerned about the loss of $25 billion in assets by broker dealers in each of the past several years to insurance companies through the sale of indexed annuities. That is the REAL and ONLY interest Glauber has in fixed and indexed annuities. It is ALL about the money. It always has been, and it always will be.
The article continues that the NASD is “considering the possible integration of regulations for popular financial products…fixed, variable and equity indexed annuities.” Can’t anyone put Glauber in his place and remind him that not only does he not have the right to insist on regulatory changes for fixed and indexed annuities; he does not have the NEED to do so? But once again, by making his regular statements about the need for uniformity of regulation over variable annuities, (which are a securities product), and fixed and indexed annuities, (which are NOT securities products but are insurance products), by making his comments assumptively, as if he had some authority to do so, he is attempting to condition the pubic to assume that he and the NASD do have some power over indexed annuities. But in truth, he is continuing to stick his nose into business for which he has no reason to get involved; unless you are concerned about the loss of $25 billion in assets by broker dealers in each of the past several years to insurance companies through the sale of indexed annuities. That is the REAL and ONLY interest Glauber has in fixed and indexed annuities. It is ALL about the money. It always has been, and it always will be.
Tuesday, May 23, 2006
NASD head Glauber is the Master of Double Talk
In a recent speech Glauber made to the NASD Spring Securities Conference in Hollywood, Fla., for some reason he attempted to soften his normal attacks against indexed annuities with some token gestures that his critical comments have “nothing to do with protecting or commandeering turf.” Some of his efforts to not look so territorial included him saying that “We (the NASD) are not proposing any new rule-making or expansion of our jurisdiction.” I only wish I had been able to see video of Mr. Glauber’s face when he spun this BIG one, because the words had hardly left his lips before he went on to say that “If Washington feels there is a void in the way an industry regulates itself, a new government-managed structure is almost certain to emerge.”
This speech reveals much about Mr. Glauber’s intended plan of attack in his attempt to assume control of indexed annuity sales. He is focusing his comments toward bureaucratically minded politicians in Washington for a reason. Indexed annuities are clearly defined as an insurance product and the insurance departments of each state have complete jurisdictional regulation regarding the products, the licensing of agents, and the sales methods approved within their state. We know that this intrusion by Glauber and his cronies from the securities business, who are making very public critical comments about a completely different industry, is all about control of the money. This IS a turf war and what Glauber and the NASD want is to get the billons it has lost to the insurance industry in recent years by the movement of huge amounts of money from brokerage accounts into indexed annuities, back into the hands of its members.
For the NASD to take on one state at a time, however, would be a long and arduous task. But by painting HIS personal concerns about indexed annuities as a national problem, Glauber is lobbying for Washington to do the dirty work of nationalizing control of this facet of the insurance industry and creating a void that would lead to the federal government handing over this new regulatory task to the NASD. There is already a growing debate about forming a national insurance regulatory body for some insurance products. Glauber is simply riding this wave for his own benefit.
From the perspective of the NASD, once this issue is taken from the control of the states and put under federal control, the NASD, as an existing national self-regulatory body, could just step forward and offer to be the saving entity that can solve this manufactured national dilemma about indexed annuities. But Glauber is simultaneously protecting his turf from other possible agencies taking over this task as he further commented that the NASD has to be tough to preserve the current self-regulatory system and ward off the creation of a new federal securities regulatory agency that might be similar.
In a nutshell the tactics Glauber is following to take over control of indexed annuities is to first confuse their identity as insurance products; then criticize their current regulatory structure; followed by alarming the public and thus Washington that there needs to be some uniform national regulation; and finally promoting that a new agency is not necessary since they could just step in and take over the regulation of indexed annuities. And that IS the agenda and ultimate goal of Glauber and the entire securities industry.
This speech reveals much about Mr. Glauber’s intended plan of attack in his attempt to assume control of indexed annuity sales. He is focusing his comments toward bureaucratically minded politicians in Washington for a reason. Indexed annuities are clearly defined as an insurance product and the insurance departments of each state have complete jurisdictional regulation regarding the products, the licensing of agents, and the sales methods approved within their state. We know that this intrusion by Glauber and his cronies from the securities business, who are making very public critical comments about a completely different industry, is all about control of the money. This IS a turf war and what Glauber and the NASD want is to get the billons it has lost to the insurance industry in recent years by the movement of huge amounts of money from brokerage accounts into indexed annuities, back into the hands of its members.
For the NASD to take on one state at a time, however, would be a long and arduous task. But by painting HIS personal concerns about indexed annuities as a national problem, Glauber is lobbying for Washington to do the dirty work of nationalizing control of this facet of the insurance industry and creating a void that would lead to the federal government handing over this new regulatory task to the NASD. There is already a growing debate about forming a national insurance regulatory body for some insurance products. Glauber is simply riding this wave for his own benefit.
From the perspective of the NASD, once this issue is taken from the control of the states and put under federal control, the NASD, as an existing national self-regulatory body, could just step forward and offer to be the saving entity that can solve this manufactured national dilemma about indexed annuities. But Glauber is simultaneously protecting his turf from other possible agencies taking over this task as he further commented that the NASD has to be tough to preserve the current self-regulatory system and ward off the creation of a new federal securities regulatory agency that might be similar.
In a nutshell the tactics Glauber is following to take over control of indexed annuities is to first confuse their identity as insurance products; then criticize their current regulatory structure; followed by alarming the public and thus Washington that there needs to be some uniform national regulation; and finally promoting that a new agency is not necessary since they could just step in and take over the regulation of indexed annuities. And that IS the agenda and ultimate goal of Glauber and the entire securities industry.
Glauber’s Admission of HIS Inability to Understand EIAs Is Telling
Glauber is at it again, warning NASD members about his concerns over the complexity of EIAs. It is amazing how involved this man has become with a product that is completely out of his jurisdiction at the NASD and is fully under the regulatory authority of a nationwide system of state insurance departments. Nevertheless, at the NASD Spring Securities Conference in Hollywood, Fla., Glauber took the opportunity at this public venue, to once again work his propaganda campaign, to muddy the otherwise clear waters about the regulation and function of indexed annuities. He insists that he, and what he calls, “some of the brightest people in (his) industry,” have put EIAs under a microscope but simply cannot understand how they work. This admission of incompetence by Glauber that he and his securities’ industry peers are clueless about understanding insurance products is exactly why they have no business speaking up critically about them.
The important thing Glauber and his buddies need to realize is that unless they personally are planning on purchasing an indexed annuity, there is no reason that ANY of them need to understand them at all. The good news that should reassure Glauber about his voiced concerns is that those in the insurance industry who sell indexed annuities DO understand how they work, and the majority of the buying public that hears about them also understands them and like what they have to offer. In fact, indexed annuities are so popular that non-insurance companies like Charles Schaub are clamoring to get into the action by developing their own indexed annuity products and the public is moving billions of dollars annually from the lack-luster performance of bank CDs and high risk securities into the safety and guaranteed benefits only available in an indexed annuity.
The important thing Glauber and his buddies need to realize is that unless they personally are planning on purchasing an indexed annuity, there is no reason that ANY of them need to understand them at all. The good news that should reassure Glauber about his voiced concerns is that those in the insurance industry who sell indexed annuities DO understand how they work, and the majority of the buying public that hears about them also understands them and like what they have to offer. In fact, indexed annuities are so popular that non-insurance companies like Charles Schaub are clamoring to get into the action by developing their own indexed annuity products and the public is moving billions of dollars annually from the lack-luster performance of bank CDs and high risk securities into the safety and guaranteed benefits only available in an indexed annuity.
Tuesday, May 16, 2006
If Only The NASD Was Held To A Legal Standard
The big difference between the lawsuit mentioned in a previous post, and the NASD propaganda campaign against indexed annuities, is that the lawsuit requires that eventually the accusers prove their claims with specific evidence. A lawsuit also allows that the insurance side has the complete opportunity to disprove the false accusations, all in an officially supervised public forum with equal rules applied to both sides. The judicial system is supposed to listen to all evidence without bias and without prejudice, and then rule based upon the factual presentation of each party made in the scheduled sessions. Courts specifically attempt to remove all influence of rumor, gossip, and pubic opinion from judicial decisions. After each side gets their say, there is an official determination by a judge or a jury, and if there have been false accusations and the court finds so, this ruling can set aside those false claims and their negative effects once and for all.
Unfortunately, unlike these ambitious attorneys, by choosing to wage their battle in the media, the NASD has found a gap whereby they are not officially being held accountable for their misinformation and false accusations. They are left unchecked when they overstep their authority and intrude into the insurance industry and make inappropriate criticisms of indexed annuities. Despite the best attempts of the insurance companies, and other annuity friendly voices to clear up these misstatements or correct erroneous information, this kind of propaganda attack being used by the NASD forces annuity proponants, the issuing insurance companies, as well as the state insurance commissioners, into a defensive posture. Years of conditioning has made the public weary of defensive positions and caused them to doubt the sincerity of someone who has to constantly fight to defend their dignity and honor. In spite of our legal precident for innocence UNTIL proven guilty, in the court of public opinion, it seems to always work the other way.
When you have a carefully orchestrated effort, such as being put forth by the NASD to steal all credibity from an entire industry sector, then you have an unfair fight that would probably benefit from the balanced and structured processes of our courts. It brings to question the power and influence we have allowed this "voluntary" self-regulatory organization to acquire, where they can so deliberately attempt such a massive influence campaign against an entire industry to which they have absolutely NO authority. The motives of the NASD are the same greed and personal agenda exhibited by the attorneys who are leading this class action lawsuit against the insurance companies. It is all about the money.
The fight that the insurance companies have with the law firm is a very winable battle because of the fair processes of our courts and the triumph that system can afford truth and justice. But the battle with the NASD will be a fight that will likely never conclude. As long as insurance products, such as indexed annuities are taking such massive amounts of money from the securities industry, this fight will continue.
An interesting "tell" in all of this is the fact that so many broker dealers, like Schaub, are beginning to produce their own indexed annuities. This move could be construed as either a validation by these broker dealesr of the value of this financial product, or it could be that these broker dealers do NOT expect the NASD to ultimately prevail, so they are preparing to become part of this fight for that market share in a different way. This competative approach to fighing the gains of indexed annuities is one that the NASD should notice and encourage from their broker dealers who are whining about lost revenue. And it is this kind of competitive approach that usually leads to more and better product selection for the benefit of the buying public. If the NASD was willing to wage a fair fight, everyone could end up the winners.
Unfortunately, unlike these ambitious attorneys, by choosing to wage their battle in the media, the NASD has found a gap whereby they are not officially being held accountable for their misinformation and false accusations. They are left unchecked when they overstep their authority and intrude into the insurance industry and make inappropriate criticisms of indexed annuities. Despite the best attempts of the insurance companies, and other annuity friendly voices to clear up these misstatements or correct erroneous information, this kind of propaganda attack being used by the NASD forces annuity proponants, the issuing insurance companies, as well as the state insurance commissioners, into a defensive posture. Years of conditioning has made the public weary of defensive positions and caused them to doubt the sincerity of someone who has to constantly fight to defend their dignity and honor. In spite of our legal precident for innocence UNTIL proven guilty, in the court of public opinion, it seems to always work the other way.
When you have a carefully orchestrated effort, such as being put forth by the NASD to steal all credibity from an entire industry sector, then you have an unfair fight that would probably benefit from the balanced and structured processes of our courts. It brings to question the power and influence we have allowed this "voluntary" self-regulatory organization to acquire, where they can so deliberately attempt such a massive influence campaign against an entire industry to which they have absolutely NO authority. The motives of the NASD are the same greed and personal agenda exhibited by the attorneys who are leading this class action lawsuit against the insurance companies. It is all about the money.
The fight that the insurance companies have with the law firm is a very winable battle because of the fair processes of our courts and the triumph that system can afford truth and justice. But the battle with the NASD will be a fight that will likely never conclude. As long as insurance products, such as indexed annuities are taking such massive amounts of money from the securities industry, this fight will continue.
An interesting "tell" in all of this is the fact that so many broker dealers, like Schaub, are beginning to produce their own indexed annuities. This move could be construed as either a validation by these broker dealesr of the value of this financial product, or it could be that these broker dealers do NOT expect the NASD to ultimately prevail, so they are preparing to become part of this fight for that market share in a different way. This competative approach to fighing the gains of indexed annuities is one that the NASD should notice and encourage from their broker dealers who are whining about lost revenue. And it is this kind of competitive approach that usually leads to more and better product selection for the benefit of the buying public. If the NASD was willing to wage a fair fight, everyone could end up the winners.
Insurance Companies Will Finally Get "Their Day In Court" to Defend the Suitabilty of Annuities--Literally
I was recently forwarded a link to the web site of a law firm who has put together a class action lawsuit against dozens of insurance companies. They are using backdoor claims that seminars sponsored by independent agents, who promote the use of estate planning trusts, were all a conspiracy supported by these insurance companies to abuse and defraud seniors into buying annuities.
But when you read what this firm has posted on their website, you see that this is nothing but another aggressive personal injury law firm’s attempts at getting into the pockets of BIG insurance companies for their own enrichment, not for any moral purpose or for the benefit of the participants. Just like the ambulance chasers who do those dorky advertisements on TV, this firm is trying to make a name, and a lot of money, for themselves by exploiting a popular issue that has a lot of media attention. As attorneys love to do, they can dramatically claim ANYTHING in the lawsuit they want, without having to prove or justify any of it at this point. The more people they can solicit to join this lawsuit only increases the potential amount they can collect for themselves if they are successful in their attempts.
When you see what the thrust of their claims really are, however, you realize that they are based in easily dismissed lies about the practices of insurance companies and the function of annuities. These insurance companies are not going to just lay down and take these false accusations, when defeating them with a good group of defense attorneys would not only save them the expense of an unjust settlement, but it could also prove to provide to the pubic an official validation that shows annuities as being perfectly suitable for seniors. When this case is tried and heard in an unbiased court of law, if it gets that far, the combined resources of all these companies should be able to easily disprove ALL of these false accusations.
The use of seminars to provide general information and bring together prospect and agent is a useful and perfectly appropriate venue that allows interested attendees to learn new information WITHOUT pressure or obligation. Still, if there were any improprieties in the recommendations or sale of trusts, it will be easy to show how those kinds of non-insurance activities by these agents are beyond the control or the responsibility of the named insurance companies. The attorney’s attempts to coin the phrase “Trust Mills” does not change the fact that an agent’s responsibility to the insurance companies to which they are contracted, and visa versa, is limited to the express authorization to sell that company’s products, and nothing further. Since a trust is a legal document, I bet if you looked deeper, the real culprits behind the overzealous use and promotion of trusts are lots of other greedy attorneys.
The final thing here is that these attorneys will have to prove that this group of people was materially hurt in some way, not just dissattisfied with their decisions. Unless the sale of an annuity was done fraudulently, something that no insurance company would condone, and that this action can then be proven to have harmed the purchaser, there is no case. The fact that there are contractual rules and limitations in an annuity contract does not make them an inappropriate product nor does that make the sale of them to willing customers fraudulent or unsuitable. Insurance law requires that all of these contract provisions are properly and fully disclosed LONG before the prospect is “locked” into their contract commitments. Every company mentioned in this suit only has to produce the signed disclosure statements to prove that the prospect was not deceived into anything. Since these attorney’s have chosen to pursue this as a class action suit, I believe it will have to ultimately be proven in court that the entire group has been harmed in the same way for this lawsuit to succeed.
But when you read what this firm has posted on their website, you see that this is nothing but another aggressive personal injury law firm’s attempts at getting into the pockets of BIG insurance companies for their own enrichment, not for any moral purpose or for the benefit of the participants. Just like the ambulance chasers who do those dorky advertisements on TV, this firm is trying to make a name, and a lot of money, for themselves by exploiting a popular issue that has a lot of media attention. As attorneys love to do, they can dramatically claim ANYTHING in the lawsuit they want, without having to prove or justify any of it at this point. The more people they can solicit to join this lawsuit only increases the potential amount they can collect for themselves if they are successful in their attempts.
When you see what the thrust of their claims really are, however, you realize that they are based in easily dismissed lies about the practices of insurance companies and the function of annuities. These insurance companies are not going to just lay down and take these false accusations, when defeating them with a good group of defense attorneys would not only save them the expense of an unjust settlement, but it could also prove to provide to the pubic an official validation that shows annuities as being perfectly suitable for seniors. When this case is tried and heard in an unbiased court of law, if it gets that far, the combined resources of all these companies should be able to easily disprove ALL of these false accusations.
The use of seminars to provide general information and bring together prospect and agent is a useful and perfectly appropriate venue that allows interested attendees to learn new information WITHOUT pressure or obligation. Still, if there were any improprieties in the recommendations or sale of trusts, it will be easy to show how those kinds of non-insurance activities by these agents are beyond the control or the responsibility of the named insurance companies. The attorney’s attempts to coin the phrase “Trust Mills” does not change the fact that an agent’s responsibility to the insurance companies to which they are contracted, and visa versa, is limited to the express authorization to sell that company’s products, and nothing further. Since a trust is a legal document, I bet if you looked deeper, the real culprits behind the overzealous use and promotion of trusts are lots of other greedy attorneys.
The final thing here is that these attorneys will have to prove that this group of people was materially hurt in some way, not just dissattisfied with their decisions. Unless the sale of an annuity was done fraudulently, something that no insurance company would condone, and that this action can then be proven to have harmed the purchaser, there is no case. The fact that there are contractual rules and limitations in an annuity contract does not make them an inappropriate product nor does that make the sale of them to willing customers fraudulent or unsuitable. Insurance law requires that all of these contract provisions are properly and fully disclosed LONG before the prospect is “locked” into their contract commitments. Every company mentioned in this suit only has to produce the signed disclosure statements to prove that the prospect was not deceived into anything. Since these attorney’s have chosen to pursue this as a class action suit, I believe it will have to ultimately be proven in court that the entire group has been harmed in the same way for this lawsuit to succeed.
Thursday, April 13, 2006
Indexed Annuities are NOTHING like Variable Annuities
Because both variable and indexed annuities have the term “annuity” contained within their names, they have been linked as similar, but the differences between the two are like night and day. Typically, a variable annuity has NO guarantee of principal so it can and does lose value, but quite the opposite, the principal in indexed annuities is guaranteed never to lose value. Gains within variable annuities fluctuate widely, and losses of principal and previous earnings are gone and must be earned back each time the market swings; but in an indexed annuity, interest credits have a minimum guarantee over the life of the contract, and the extra interest credits earned by increases in the linked index are periodically “locked in” after which they can never be lost. Variable annuities have enormous fees deducted from the principal account value each year, regardless of whether the account experiences gains or losses; but in an indexed annuity no fees are EVER deducted from the account value itself, but only paid by a slight reduction in the extra interest credits in positive years only. This method of “sharing” gains, within an indexed annuity is not that unlike the way “no load” mutual funds, the darlings of the do-it-yourself securities investors and fee-for-service financial planners, deduct their hidden fees off the top from a portion of the overall gains. Both variable and indexed annuities have surrender charges for a stated period of time, but these fees are only imposed if the annuity is liquidated entirely, or in an amount exceeding the allowed annual free withdrawal. But considering that in a downswing of the market, the account value in a variable annuity could also be lower than the starting value, the impact of surrender charges imposed in a variable product only compounds those losses. In an indexed annuity the worse case scenario in any type of market is a flat year with no growth. All annuities have been given tax favored status by the IRS in that all earnings within an annuity are tax deferred. But the exchange imposed by the IRS for that valuable benefit is a 10% penalty for withdrawal prior to age 59 1/2, similar to any other retirement savings vehicle. This makes annuities excellent long term retirement savings instruments for someone of any age. With the ability to defer withdrawals indefinitely, and when taking money from an annuity does become necessary, using either their generous free withdrawal privileges or their unique ability to convert the account to a guaranteed income stream that cannot be outlived, annuities are also the perfect distribution vehicles to use once retirement is reached. Any question of suitability raised by the NASD about replacing a variable annuity with an indexed annuity is simply another part of their deceptive propaganda campaign to get control of these incredibly powerful financial products.
Tuesday, April 11, 2006
Replacing Variable Annuity with Indexed Annuity is an Exercise in Safety
The NASD would have the public accept that indexed annuities are the same as variable annuities, not because they really believe this to be true, but because the NASD currently has partial jurisdictional control over variable annuities, but no authority at all over indexed annuities. This attempt to blur the line between these two products is all part of a methodical propaganda campaign being waged by the NASD to wrestle control of indexed annuities from state insurance departments. Interestingly enough, contrary to the accusations of the NASD about owner complaints and agent improprieties, indexed annuities actually have fewer complaints registered with the NAIC than any other annuity or insurance product, and of the complaints filed; none include allegations of failure of their indexed annuity to perform as expected. Unfortunately the same cannot be said about variable annuities, where numerous complaints have been filed with a number of regulatory agencies, and in one instance, the issuing company has not only pulled their variable product from the market, they are settling a class action lawsuit with the existing policy holders. So, when the NASD cites replacement of variable annuities with indexed annuities as a basis for their fears of lack of suitability, exactly what is the real concern? When an indexed annuity moves the policy holder from a position of risk they had with a variable product, to a position of guarantees and safety available with the indexed annuity, unless the client needs to remain exposed to potential losses, an indexed annuity will ALWAYS be more suitable, especially with the older clients who need to reduce or remove their exposure to market risk. But the differences are so dramatic; we will take time in the following post to examine some key distinctions between variable annuities and indexed annuities.
Monday, April 10, 2006
NASD Completely Out of Line With EIA Webcast
The NASD is now taking on the task of trying to teach its members, in minute detail, about EIAs through the use of a Webcast, presented with all the enthusiasm and energy of a dead fish. But aside from the lifeless way this material on their site is presented, it is wrong of the NASD to even address this topic for two major reasons. First, the NASD does not have ANY regulatory authority over EIAs and therefore has neither the responsibility to educate their registered reps about them, nor the RIGHT to discuss them with such detail, as if they did. I wonder how the NASD would like it if insurance departments, suddenly began to discuss and attempt to educate registered insurance agents about securities products in the same manner the NASD has been forcing their way into talking about the sale of annuities. The SEC is SO controlling when it comes to the regulation of securities, and the NASD, as the self-regulatory body for registered reps, is even more reactionary to any variance from an extremely well defined set of rules and regulations that govern the sale of every securities product. So how is it that the pubic figure heads for this same organization keep illegally calling indexed annuities investments, when a registered representative of the same organization is forbidden by law to call any non-security product an investment? The second reason, this web posting about EIAs by the NASD is out of line, is that they attempt to summarize and explain ALL of the variations of EIA product designs at once. Imagine them trying to explain ALL of the variations of every mutual fund, including all the differences in fees, internal design, and investment objectives, in a single 7 ½ minute video. It is no more necessary that a client understand every possible EIA available in order to make an informed decision about buying one, than it would be for a client to fully comprehend every single mutual fund available before choosing to buy one of them. Part of the agent’s job is to sift through the enormous number of offerings in either of these product lines, and then present the client one or two best matches, based upon their ethical professional judgment and their evaluation of suitability based upon the stated financial objectives of the client. For mutual funds, the broker dealers, the mutual fund companies, and the NASD should be the ones that provide the educational information the agent needs in order to do their job properly. Similarly, the insurance companies, GAs or FMOs, and the state insurance departments, and NOT the NASD are the ones who should be doing all the educating for licensed insurance agents about the details of indexed annuities. And the fact that SOME insurance agents offering EIAs may also be registered reps does NOT give the NASD ANY right or responsibility to intrude into the business of EIAs, any more than then insurance departments have a right to intrude into the business of securities products because an insurance agent is also a registered rep.
Thursday, March 30, 2006
The Securities Industry Takes Its Propaganda Campaign to Washington
The Senate Committee on Aging got an earful from securities industry representatives, as it met on March 29, specifically for the purpose of examining methods con artists use to persuade older Americans to invest in a wide range of fraudulent investments, such as fake promissory notes and fake real estate investments. From this agenda you would think that the securities representatives would have enough concerns about such illegal activities within their own industry and stay on topic. A victim and a convicted con artist, who testified, only talked about schemes that had no relationship to insurance or annuities. But the 3 securities regulators who testified, chose instead, to once again step completely outside their area of jurisdiction, and take this opportunity to continue the misleading statements against indexed annuities we now so quickly recognize as part of their ongoing propaganda campaign, which is meant to eventually wrestle control of indexed annuities from the insurance industry. Patricia Struck, president of the Wisconsin NASAA, Elisse Walter, executive VP for regulatory policy and oversight at the NASD, and Susan Ferris Wyderko, director of the Office of Investor Education and Assistance at the SEC, all chose to devote from 10 – 20% of their written testimony to emphasize the need to keep seniors from buying unsuitable annuities. Besides the same false and misleading statements about the product details we have seen so often from securities regulators, their illegal references to categorize indexed annuities as investments, and the vague generalized statements, they also managed to attack the “free lunch” seminar as a sure way of spotting a con artist who is selling unsuitable annuities to seniors. Ironically, these securities representatives found a way to get it on record that “variable annuities are legitimate and suitable investments,” although they go on to provide their required disclaimer about potential risk and costs. As I read about this hearing, it reminds me of the way Hollywood actors have been brought in to testify about some social issue, not from their overwhelming knowledge or expertise, but simply because one of the character roles they played in a movie portrayed some knowledge about the issue. In the case of this hearing, in their comments about indexed annuities, the three securities reps don’t even have that credential to fall back upon. It is not surprising that the securities industry is taking its propaganda campaign to Washington, where misleading and confusing statements, insinuations, and deception are normal ways of doing business; and where having a strong financial concern about some issue is sufficient to earn an individual or a group, the title of expertise. Even though many of these securities reps’ comments and statements are false and misleading insinuations, in Washington, at least, they simply call that “spin.” And we have come to see how the NASD and others in the securities industry are becoming very skilled at this kind of political “spin.”
Tuesday, March 28, 2006
Generalizations Can be Harmful to Consumer’s Financial Health
In a USA Today article, written by Greg Farrell, entitled SEC targets investment scams aimed at seniors, he has fallen hook, line, and sinker into the journalistic trap of allowing previous misstatements and generalizations about this topic to fuel inaccuracy and misleading assumptions in his own article. The subject of his piece is addressing concerns that, as baby boomers continue to reach retirement, there will be increasing motivation for scammers to come up with ways to profit from this enormous amount of retirement money looking for a home. Since the first use of currency, preying upon opportunity has been a given practice of the underside of human nature, and it would be surprising if there were not swarms of deceptive practices meant to get rich from this rising tide of retirees. But besides his stating the obvious, as Farrell tries to explain with examples, he resorts to generalizations in a way that implies that all such practices similar to the ones he cites are scams aimed at harming seniors. He mentions seminars that “promise” to provide a free lunch, as if the scam he is concerned about is that the promise of lunch would not be fulfilled, and the seniors would go away hungry. The other inference Mr. Farrell makes is that seniors are an “increasingly vulnerable group,” as if when this group grows older, they also grow stupid, making them more likely to make bad choices and decisions when confronted by any shyster who offers them a free meal. The generalization that really provides the greatest amount of disservice by misleading the readers is his accusations that “high-pressure sales pitches (are) designed to get older Americans to put their assets into unsuitable investment programs, such as annuities.” Since the only annuity product that is classified as an investment is a “variable” annuity, we have to assume Farrell is insinuating that they are an unsuitable investment program for senior adults. I wonder if the SEC or the NASD would agree with this broad assumptive statement. And of course, if you hear about such a financial product at a “seminar” where there is also free food, then there must be something rotten afoot, so beware. This kind of article, in such a prominent publication is irresponsible journalism. Seminars provide a perfect venue for someone to anonymously check out any type of program without obligation or commitment. At a seminar someone can evaluate if they want further information or if they like and believe the presenter, all from the safety and comfort of the back row, if they so choose. If Farrell is insinuating that simply because you provide a free lunch, that you will suddenly impair a lifetime of intelligence and the ability to made good judgments in a senior, then the next article he writes should be an apology for insulting a complete generation of people whose lives have proven that they get wiser and more street smart with age. Scams come and scams go, but the wise will always survive. Perhaps the real answer is that these people are willingly making decisions to buy these products with no coercions whatsoever, because they have evaluated them, they understand them, and they believe them to be exactly the product that meets their needs. Let’s give the seniors some credit and stop generalizing them as stupid, weak, and vulnerable individuals who will fall for anything when their stomachs are full. It is Mr. Farrell who is the one who has provided the scam in this instance.
Glauber Continues His Personal Vendetta to Control Indexed Annuities
With the announcement of a planned Annuity Roundtable in Washington, DC on May 5, by exiting NASD CEO and Chairman Robert Glauber, he continues to be the strong voice of misstatement and propaganda, meant to weasel control of fixed and indexed annuities from state Insurance Departments, and place it with the NASD. The March 23rd press release, not surprisingly issued by the NASD, lists an impressive group of participants from both the securities industry and the insurance industry. But this call to discussion is not initiated by the insurance side, which has sole authority over the regulation of fixed and indexed annuity sales and marketing practices, but rather, it is an intrusive move by the outsiders in the securities industry to force their involvement into an area which is none of their concern. The first striking impression of this announcement appears to be as oddly misplaced as if Baptists leaders were to invite Catholics to attend a summit for the purpose of discussing their concerns with the liturgical practices within the Catholic Church. The parties who are putting together this Roundtable are completely outside of the regulatory circle of authority of these pure insurance products. But that does not stop Glauber with his statements of misleading propaganda. He continues his rhetoric of illegally calling fixed and indexed annuities investment products, which they are not, and stating that “equity-indexed annuity sales are a jurisdictional jump-ball, because it isn’t clear whether they’re securities, insurance products or something in between.” To everyone but Glauber, it is very clear that fixed and indexed annuities are completely within the jurisdictional domain of the state insurance departments, and are not subject to ANY authority of the NASD or any securities regulators. But since Glauber and the NASD members are not happy with that answer, they continue their lies; all with the purpose of confusing this well know fact in order to justify their intrusion into an industry outside of their legal authority. Fixed and indexed annuities are not investments but are insurance products, and only insurance products. Glauber may claim that he is not proposing new rulemaking by the NASD or any expansion of its regulatory jurisdiction, but he continues to insist on their involvement in such discussions about indexed annuities using his propaganda about their uncertain identity and that for the protection of “investors” the NASD and these other “interested parties” need to speak up. As long as the proper authorities allow his lies and misstatements to influence their actions, he will continue to get attention for his propaganda campaign. But my suggestion is that the insurance industry not kowtow to his rhetoric any longer, and suggest to Glauber that he sit down and forever hold his peace.
Thursday, March 23, 2006
Does Charles Schwab Want to be the Pot, or the Kettle?
I recently became aware of the fact that discount brokerage house, Charles Schwab, is promoting a couple of indexed annuities of its own design, called Index Rewards and Index Rewards 5. It is interesting to see such a prominent member of the NASD family, using the same marketing "catch phrases" that so many registered insurance agents have been criticized, and even punished for using. Reading from their own web site, I see a section labeled: Potentially higher returns, and, Guaranteed minimum interest. The information provided is technically accurate, in that it states that, "interest rate is linked to a formula that uses the performance of either the S&P 500 or the Dow Jones Industrial Average," and that “a minimum guaranteed interest rate floor…preserves principal and credited interest when held to maturity.” Still, I fail to see how the Schwab site differs from the highly criticized methods of so many agents who have been offering indexed annuities for years making similar marketing claims, only to be severely attacked by the NASD for doing so. These descriptions only hint at the full details of how those indexes will be used to calculate that interest, as most marketing materials only provide highlights. The amount of missing information yet needed to help a client understand the products fully is enormous. Usually that is where the sales agents steps in and can help fill in the blanks, when the literature is insufficient or confusing to the average layman considering the purchase of an indexed annuity. The real question I have, is simply this: how does a brokerage house, that grew to its current level of prominence by offering inexpensive, self-directed trades, and provides little or no investment support or advice to its customers, expect to be able to sell indexed annuities with ANY level of explanation or service such as the NASD has so vehemently clamored needs to be extended from the current level provided by sales agents. Is Schwab planning on being a clearing house for people who are simply shopping annuities and find their offer enticing? I have no problem with a major brokerage house getting into the indexed annuity business. It is a type of confirmation that the product is both viable and desirable enough that they want a piece of that market. I do, however, have a problem with a brokerage house getting into the insurance business, when they do not possess the experience, the knowledge, the understanding, or the manpower to provide what the public needs, in order to make informed choices. This shortcut step by Schwab could be interpreted as an admission by a powerful member of the securities industry, that the current marketing materials, forms, and contracts are sufficient for many people to educate themselves before buying an indexed annuity. If this is so, then where did all this recent criticism we have been hearing from the NASD and others in the securities industry come from? I am curious to see how, or if, the NASD will have negative comments on how Schwab is marketing their indexed annuities.
Is There Finally Some Hope for the NASD Regarding Indexed Annuities?
New NASD Chairman, Mary Schapiro appears to sound a little more reasonable about her view of the role of the NASD regarding insurance products. When a planned notice to members is released soon, regarding the position of the NASD on life settlement transactions, we will know more definitively how balanced her positions really are. But in her recent talk at a conference in Hollywood, Fla., organized by the compliance and legal division of the Securities Industry Association, Washington, Ms. Schapiro was quoted saying that, "equity indexed annuities may not be securities" and further stated that “plain vanilla annuities are not securities.” While this may not be a full admission that EIAs are purely insurance products, it is a few steps back from the confusing double talk of her predecessor. Her other comments, about the need for brokers to carefully weigh the alternatives before recommending the sale of an existing life insurance policy through a life settlement company, at first may seem somewhat an intrusive interference by the NASD into a business which is not under their jurisdiction. But if this is as far as her comments go, I have hopes that maybe some of the recent attacks by the NASD on fixed and indexed annuities may be slowing to a manageable discussion. I strongly agree with her explanation, that while variable, fixed, and indexed annuities are often purchased to provide a similar purpose, the inherent differences in each of each of these products do not equally fulfill the needs of every client. Nevertheless, this does not provide the NASD an invitation to participate in the decisions regarding the regulation or the sale of non-registered insurance products such as fixed and indexed annuities. The truth has to be accepted that registered representatives, who are also insurance licensed, will have to answer to two different masters, depending upon which products they are presenting. The NASD certainly does not accept that a licensed insurance agent, who is registered to sell mutual funds, must also answer to their state insurance department regarding their activities in the sale of these registered products. That portion of their business clearly does not fall under the domain of insurance regulators, but the NASD. Likewise, fixed and indexed annuity sales by a registered broker do not fall under the jurisdiction of the NASD, but are only subject to the authority of each state insurance department.
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