SEC Poised to Regulate Index Annuities
July 12, 2008
Concerned about reports of unsuitable index annuities sales to seniors, the Securities and Exchange Commission approved a proposal on June 25 that would, for the first time, classify index annuities as federally regulated securities.
The agency gave interested parties until Sept. 10 to file comments or objections to the proposed change and said that the rule would go into effect 12 months after it is published in the Federal Register. It could be published by the end of 2008 or in January 2009, an attorney familiar with the SEC action said.
This change, if it becomes law, could give added protection to consumers, the SEC believes. But it would almost certainly upset the distribution pattern of index annuities, most of which have been sold by non-registered insurance agents or by registered reps selling outside of broker/dealer supervision.
At least one securities lawyer was relieved that the proposal did not touch the current definition of an annuity, a step that might have created more questions than it answered. Also, the change applies only to future sales of indexed annuities. “It was very surgical,” said Judith Hasenauer, a principal at Blazzard & Hasenauer, PC, of Fairfield, Conn., and Pompano Beach, Fla.
One fixed annuity expert expressed mixed feelings about the proposal. “Although I am not a lawyer, fixed annuities—indexed or not—don’t appear to meet the definition of a security to me,” said Jeremy Alexander, CEO of Beacon Research, an online source of fixed annuity product data. “The issue seems to be that consumers often don’t differentiate indexed annuities from securities and may have unrealistic expectations of these products.”
“Indexed annuities can be extremely complex (even to industry experts) and it seems that many of the agents selling these products may not fully understand how they work,” he added. “If the SEC proposal forces the industry to address these problems effectively and consistently, we will all benefit over the long term.”
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