In a letter to Florence Harmon, Acting Secretary of the United States Securities and Exchange Commission ("SEC") the Independent Insurance Agent & Brokers of America ("The Big I") firmly states the case as to why Equity Indexed annuities should not be regulated by the Feds.
Here is the technical thrust of the argument:
"The rule, which would exclude indexed annuities from the current definition of “annuity contracts” under the Securities Act of 1933 and analogize indexed annuities to variable annuities, ignores the fact that indexed annuities are a form of fixed annuity that ensures a minimum guaranteed rate of return. The Commission argues that buyers of indexed annuities are subjected to “significant investment risk” and that the purchasers of these products are motivated by the “prospect of investment growth,” but the reality is that indexed annuities are savings and financial protection vehicles for the consumers who purchase them. As with other fixed annuities, there is simply no risk to principal (barring the surrender of the annuity) and a guaranteed rate of return regardless of whether the stock market produces positive returns. In short, indexed annuities are insurance products – not securities – that protect principal, offer a guaranteed amount of return over the length of the contract, and provide the traditional benefits of fixed annuities"
Equity Indexed Annuities may have a place in financial planning for certain classes of tort victims. The issue has been pending for years and really does need to get resolved one way or another. the compliance departments of a number of insurance company owned broker dealers prohibit the non securities licensed representatives to sell equity indexed annuities because of the uncertainty.
Click here for the complete "Big I" letter to the SEC.