by John Darer CLU ChFC CSSC RSP CLTC
In its June 18, 2013 piece "Annuity information should be communicated more clearly" Financial Advisor Magazines's Ted Knutson writes that "Securities and Exchange Commission Investment Management Division Director Norm Champ told annuities industry professionals Tuesday that their communications with consumers needs to improve because the investments have become more complex" Agreed
He then cites another SEC employee "Adding his voice to Champ’s call for better disclosure, Investment Management Division Office of Insurance Products and Regulation Assistant Director Bill Kotapish said the feature of some structured annuities that has the company assuming the first 10 percent to 20 percent of the risk with the investor assuming the rest needs to be communicated crystal clear".
Note that a similar report on the topic by Darla Mercado and MarkSchoeff Jr. at Investment News, cited Kotapish but did not mention structured annuities.
Unfortunately the statement attributed to Kotapish by Financial Advisor is not correct.
Structured settlements are primarily funded with fixed annuities, making periodic payments, by law [see (IRC 130(c)(2(A)] that fixed and determinable as to amount and time of payment" issued by life insurance companies which:
(1) are not in the purview of the SEC. They are the purview of one or more state insurance departments
(2) someone who receives a structured settlement IS NOT assuming market risk as the attributed statement implies.
Even if Kotapish's statement was recorded accurately, a financial writer should be checking his facts instead of citing blindly.
I do agree that a structured annuity presentation should tell the full story of the product and ideally give each potential annuitant information tailored to his or her needs.