by HB92121 » Thu Jul 08, 2010 07:50 pm
Just wondering if anybody's broker-dealer reviews indexed annuities for a % fee, or are they all running them through the grid? Or is anyone's broker-dealer NOT reviewing them?
Posted: Fri Jul 09, 2010 02:40 pm Post Subject:
Since indexed annuities are not registered products, they are not subject to B/D strictures. However, in the aftermath of the SEC's guidance on Rule 151A (which is under suspension for at least two or more years), some B/Ds are "supervising" their sales.
If you're talking about a B/D making comparisons of one annuity over another -- that's a task for the agent, not the B/D.
Posted: Sat Jul 10, 2010 05:14 pm Post Subject:
Many B/D's are either restricting the sale altogether or limiting sales that must flow through the B/D. Meaning the products go through the B/D the same way other variable products would go through teh B/D and the the B/D takes a share of the gross commissions paid on the product. There are some (I believe) who are ignoring the sale of indexed products completely, the smaller outfits.
Posted: Sat Jul 10, 2010 10:11 pm Post Subject:
And, honestly, it's not really the product design that causes most of the "trouble" with indexed annuities, it's the sales presentation and dialogue. Almost the same words are used in the sale of indexed universal life insurance.
Agents are often taught to say things such as "Our [indexed product] gives you all of the upside of the market with none of the downside." Most of us who understand the products know this is not true -- the upside may be limited both by a "participation rate" and a "rate cap". And any change in interest crediting rate is usually made annually on the contract anniversary date, not on a daily basis as it is in a true variable product. (There are some newer products with more frequent adjustments such as monthly or quarterly.) So performance in a indexed product usually lags the market in an up cycle.
And while there will be no loss of principal if the index goes negative, that doesn't mean the cash accumulation value will not be negatively impacted (moreso in an IUL product than an annuity, if at all) by other "internal" expenses (M&E, policy fees, etc) entirely unrelated to the index of choice.
Registered reps know enough not to use the wrong language in their sales presentations. It's mostly those agents who are not securities licensed that caused themselves all the grief behind Rule 151A (that and the promotion of Christopher Cox to Chairman of the SEC by GW Bush).
Why the rule did not also apply to sales of IUL contracts is beyond me. They're either the same and need to be regulated, or they're both non-securities and don't need to be regulated (as the general account products that they currently are). It will probably be up to the courts to make that determination if the SEC doesn't see the light in the coming two years.
Posted: Fri Jul 16, 2010 02:38 pm Post Subject:
It's all about money. EIAs take dollars away from variable annuity sales. VAs go through the B/D, thus the B/D get their share.
If one is employed by a B/D, the B/D can make the sale of all products go through the grid. Thus, the sale of EIAs don't hurt the bottom line and they are often allowed.
If one is using an independent B/D and thus isn't an employee, the B/D can't make the sale go through the grid. So, what independent B/Ds typically do is to ban the sale altogether. They can do this simply by not allowing their sale as an outside business activity. "If we can't make money. You can't sell them."
Max, the rule doesn't pertain to IUL products because IUL products aren't taking money away from the sale of variable products. You are 100% correct that the consistency should be there.
Neither IUL nor EIA products should be treated like securities since there is no investment risk and no separate account. The problem isn't with the product. It is with how these are sold at times.
Posted: Fri Jul 16, 2010 03:45 pm Post Subject:
I think we're very much on the "same page" on this.
Max, the rule doesn't pertain to IUL products because IUL products aren't taking money away from the sale of variable products
I rather like your reasoning . . . not sure I've heard it expressed like that before.
But, don't forget, it wasn't the B/Ds who pushed for Rule 151A -- in fact, they've been kicking and screaming against it ever since it was first proposed, because they know it's not a security. Just another layer of mandatory supervision they would prefer not to have to exercise -- and this over a general account product. And their argument is well taken (by all except the SEC).
If one is using an independent B/D and thus isn't an employee, the B/D can't make the sale go through the grid.
I'm not entirely certain that's a correct understanding. I'll leave it up to others to comment on it. Mostly, we're all independent contractors not employees, so I don't think that's the primary factor. I believe the SEC leaves it to the discretion of the B/D, but "strongly suggests" that the sales be supervised in the same manner as any other variable insurance product.
Neither IUL nor EIA products should be treated like securities since there is no investment risk and no separate account. The problem isn't with the product. It is with how these are sold at times.
EXACTLY! Same sort of thing I said in my opening sentence of that post:
it's not really the product design that causes most of the "trouble" with indexed annuities, it's the sales presentation and dialogue.
IAs and IULs certainly have their role in the universe of insurance products -- especially for the "risk averse" client. Unfortunately, in too many cases, they are being sold by persons who, for whatever reason, cannot obtain a securities license (and have the most to fear about Rule 151A), otherwise those same persons would probably be marketing VAs and VULs.
So, in that sense, I think we'd have to say that IUL sales are taking money away from VUL sales, in the same way that IAs do from VAs.
INCONSISTENCY. It's the engine of government. (That, and spending money it doesn't have.)
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