Thursday, January 14, 2016

Confessions of an Equity Indexed Annuity Salesperson?

Response letters to potential regulatory changes can be a gold mine. I was recently reviewing some old responses to an SEC rule that would bring Equity Indexed Annuities (EIA) under the umbrella of the SEC and require insurance agents who sell them to be registered (Registered Reps of a FINRA Broker/Dealer).

One agent for a company called #ValuTeachers wrote a response and I'm excerpting it below. Please consider that if I were to write a parody response letter to the SEC (posing as an insurance agent selling these products) it probably wouldn't look much different. The entire letter is at the end.

Claim/Statement #1

"To make the equity index annuity a security product would damage the ability of people who need this particular product to receive a fair representation of the product."

My Response:

Two things, first, no one NEEDS an EIA product, no one. Second, a sales agent that is highly motivated to sell a particular product because of its high commissions and potential luxury vacation rewards is NOT capable of providing a "fair representation" of anything. If this agent is truly concerned about representing any product fairly, he should be lobbying for the end to commissions in exchange for product sales.


Claim/Statement #2

"It would first make thousands of current Life insurance representatives have to get securities licensed to continue selling the product. Most will not do so leaving the current clients that they have stranded. This rule has not been thought through with the clients' best interest in mind. If so the SEC would realize the need to keep this an insurance product which is already being regulated by the insurance departments in the various states. If we force thousands of life insurance representatives to get licensed what if they choose not to."

My Response:

An insurance agent who advises clients on what to do with their investments, including talking about the stock market, should certainly be regulated more than the state insurance commission regulates. 

This agent claims that if forced to register as a representative or an advisor, most insurance agents would rather abandon their clients than register. What exactly does this say about such agent or agents in general (I know a lot of insurance agents who are good people and would never abandon their clients)? It says they are lazy and really don't care about their client (note, I don't believe all insurance agents are lazy, just ones that agree with this particular agent). If they really cared, they'd not abandon their clients over a specific product requirement. I find it ironic that this agent believes the SEC should have "the client's best interest in mind" but that the agent shouldn't be required to put the client's best interest first...notice he is not arguing for a fiduciary standard. If thousands of insurance agents choose not to register in order to sell EIAs, fewer EIAs will be sold and more investors/savers will have been protected.


Claim/Statement #3

"Many questions come to my attention in thinking of the client. 1. Are current insurance agents out of compliance for taking care of their current client base when they call and have questions about a product sold to them by their insurance agent but they are not securities licensed? 2. If the insurance agent is not securities licensed but continues in servicing their client and a registered representative files a complaint with the SEC because the insurance agent is discussing securities without a license how can you regulate that? 3. Should the thousands of clients that have billions of dollars in these products be penalized by having their friend and trusted advisor that is an insurance agent no longer be able to help them with their equity index annuity? 4. Will the SEC pay the surrender charges incurred by clients when a registered representative transfers them out of their current equity index annuity and into another product? 5. Will the SEC be able to monitor the activity of the sell of equity index annuities as it has shown it's lack of ability to look into it's current obligations. The headlines are evidence to this very fact! WALL STREET CRISIS! Where is the SEC now that everyone has made their money and left."

My Response:

This rambling and nonsensical statement goes after Registered Representatives as criminals and again builds a straw man. Insurance agents will not abandon their clients and source of income if forced to register, they'll register and if they don't, someone else will steal their clients. This is not an attempt to avoid needless regulation, it's an attempt to stay essentially unregulated. The insurance industry still allows what amount to kickbacks in their sales process and allowing such a system to continue is the real purpose of this agent in my opinion, a perpetuation of a corrupt system.


Claim/Statement #4

"It has been my experience in dealing with securities licensed people that the only thing that everyone needs is to put money in the market and securities. Any fixed annuity is almost below them when in fact often times people instruct them to give them a safe investment. Whoops! Insurance companies sell insurance products and broker/dealers sell securities products. This is not a time when we need to be arguing over what type of product should the equity index annuity be but whether or not the SEC a federal organization that cannot even handle it's current obligations be given authority to regulate even more that they cannot." 

My Response:

So this agent's limited experience now makes him an expert on all products sold across the industry. He presents no evidence. He does get one thing right, insurance companies sell insurance products! But B/D's sell all sorts of products, not just market based securities. If you only have an insurance license, all you can sell is fixed annuities (which are not investment, but savings products), it's the same old adage, if all you have is a hammer, everything looks like a nail. I'm certainly not going to argue that the products B/Ds sell are good for clients, but the main reason (left unspoken), in my opinion that this ValuTeachers/LSW agent doesn't want additional regulations is because it will end up cutting his commissions and all the perks received from the insurance companies. This is about the gravy train, not the regulatory train.


Claim/Statement #5


"It is evident with the current crisis on Wall Street that the SEC should spend more time regulating Wall Street and leave the insurance products to the insurance companies."

My Response:

Umm, AIG anyone? They were an insurance company, right? Nuff said.

Claim/Statement #6

"I urge you to give careful consideration to this rule and see through the mere attempt at increasing the number of people paying fees to the SEC. The product is harmless in most cases to the investor. There have been abuses as there have been in the selling of mutual funds to investors who have said they do not want any risk. The SEC handles the registered representative that does wrong and the insurance departments are handling the insurance agents that do wrong."

My Response:

The SEC doesn't regulate brokers (Registered Representatives), FINRA does (technically there is some overlap). Can anyone with a straight face really say that the state insurance departments have a handle on the sale of Equity Indexed Annuities? Anyone who reads this blog knows they don't. These products do cause harm and are mostly sold because of the high commissions and lack of any need to register combined with sales contests that send agents to Cabo, Maui, Monte Carlo...etc.

Conclusion

I've reprinted the letter below, I found it on the net, here. This letter provides some insights into the way EIA agents think. They are attempting to defend their turf and their income, but we need to make sure that the defense of their income doesn't come at the expense of the client. EIAs need more regulation.
Scott Dauenhauer, CFP, MPAS, AIF

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