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Advantage Compendium - An Index Annuity Resource |
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Investment Advice, Advisors
& Attacks On Agents 1/07 The general understanding for years has been that an
investment advisor was a person that received fees for advice. Indeed, the usual
regulatory rule states an investment advisor receives compensation for advising
others of the "advisability of investing in, purchasing or selling
securities". But today it appears that some security minions are going
after fixed annuity agents by saying if they mention securities during their
fixed annuity presentation that the agents are talking about
"advisability" and since the fixed annuity pays a commission that the
agent is being compensated. Unfortunately, most state regulations are very vague in
defining investment advice and what is an investment advisor, probably because
the SEC has not well defined it. A strong argument could be made that telling a
consumer that you can handle their investment needs, analyze their portfolio,
and then select the appropriate mutual funds, bonds and stocks, all for a 2%
asset-based fee, is acting as an investment advisor. However, if a consumer buys
an insurance agent a cup of coffee and says "The stock market sure
looks uncertain today" and the agent nods yes or no, an aggressive
security department could say the insurance agent was providing investment
advice for compensation. I am talking to insurance regulators because this issue is not going away, but the problem is the security departments are not saying index annuities are securities and they should regulate them instead of the insurance departments, they are saying the agents are not acting like agents but like investment advisors, which falls upon security turf. The only permanent solution is for the SEC to redefine what investment advice is, or for a federal court to uphold the right of free speech for agents. In the meantime producers need to watch what they say and provide balance in their fixed annuity presentations. Matchbox
Cars & Retirement 1/07 I was a teenager during this period and my money habits today were not determined by
incense, Iron Butterfly or the placement of my draft number (118). Instead,
other factors impacted this generation. The moms of baby-boomers told stories of sleeping three
to a bed, the dads said their childhood goal was to be the first kid to use the
bathwater, and both parents accepted a world where hardship was just the way
things were. They struggled, they tolerated, they became independent, and they
produced baby-boomers. By
contrast, babyboomers complained when they had to share a bathroom with their
sister, or as adults about the thread-count in their sheets. We’ve
had primarily consequence free lives so that we think we are smarter than we
actually are, and we’ve gotten away with so much stuff that we think if we
throw a tantrum the world will bend to us. We’re spoiled. Marketers need to treat babyboomers as
the spoiled children we are and that means responding in one of two ways. One
way is to trick us into thinking we’re still getting everything our way. For
example, the marketer’s message could be “index annuities are for special
smart people and may not be for you”, which will cause us to whine because we
don’t like being told we can’t have something, and then the marketers can go
ahead and say “okay, you can have an index annuity this time, but just this
once”. I call this the Barbie Dream House/Matchbox Car Garage sales approach. The other way is to use guilt. As baby-boomers we know
we’ve had it good, so the marketer’s message could be “a fixed annuity is
the grown-up way to handle retirement income needs because you don’t want your
children to be stuck taking care of you” or more simply “be an adult and buy
the annuity”. This is known as the Tough Financial Love marketing
approach. So, the new retirement ads will either show a group of
seemingly wise baby-boomers playing with financial toys with the tag line
“retirement product may not be available because quantities are limited”,
which will encourage us to act now before the annuities are all gone, or show a
nanny with a stern countenance saying “You’ve been caught. It is time to
grow up, take care of your retirement, and buy the annuity”. Either approach
will be dramatically more effective than pictures of tie-dyed shirts and black
light posters. Peace & Right On.
A Quasi-Hypothetical Look At Returns & Index Participation
2/07
As a disclaimer, most index annuity carriers group the
applications received; applications
What percentage of the annual S&P 500 index gain did the index annuity methods participate in? The top interest-earning annuities credited interest that was equal to 90% or more of the index gain for the same period and twice credited greater than 100% of S&P 500’s actual return – thanks to averaging or triggers, the worst annuities skunked for two months and averaged 22% of the index gain overall. Depending on the annuity purchased your average return for all 12 annual periods ranged from 2% to 9% in 2006. If you take a long term view, say 50 years, and plug in current rates into historic index returns, you find the effective participation, when calculated as a percentage of average annualized returns, produces a tighter array of participation than 20% to 90%. As examples, the average annualized return of an annual reset point-to-point method with a 100% participation rate and a 7% cap equals 53% of the average long-term index return, if you apply daily averaging with an 8% cap you’d get 51% of the long-term index average, and a monthly cap forward structure with a 2½% limit gives you 56% of the average S&P 500 overall annualized return.Does this mean a good index annuity should give me 50% to 60% of actual index movement?
Does this mean a good index annuity should give me 50% to
60% of actual index movement over my future holding period and a great one might
give me 90%. Maybe, maybe not, because past performance does not do a good job
of predicting the short-term future. I’ve collected actual return data for five year periods,
once each year, for five years, so I can put up some real numbers about actual
index participation. With the exception of the 1997 – 2002 returns, which use
first of the year returns, all of the other five year periods use annual periods
that begin and end on or about 30 September each year. We’ll begin with the
most recent results. 9/01
– 9/06 9/00
– 9/05 9/99
– 9/04 9/98
– 9/03 1/97
– 1/02 A more appropriate benchmark for index annuities is 1 Year CD rates Index annuities are targeted as savings vehicles and their goal is to be competitive with other savings vehicles. Thus, it would make sense to benchmark index annuity returns not against S&P 500 returns but against other savings vehicles. It would be more of an apples-to-apples comparison for an annuityowner to know their annuity earned 40% more interest last year than that paid in the bank from whence the money came from, rather than how their annuity earned 40% less than an investment metric that the annuityowner never considered in the first place. An appropriate benchmark for fixed annuity returns is the average one-year rate on certificates of deposit, and using this metric index annuities have participated very well. Standard & Poors does not sponsor or endorse any index product. Information is for illustrative purposes, does not included reinvested dividends, ignores taxes or sales charges, and could never be construed as investment advice. Index Annuity Sales Decline In 2006 3/07 The Advantage Index Sales & Market Report shows fourth quarter 2006 index annuity sales were $5985 million compared with sales of $6501 million for the previous quarter. Fourth quarter sales were down 9% when compared with third quarter sales; down 8% compared with the same period one year ago. The top ten carriers for the quarter were:
Total Sales for 2006 were $25.3 billion. The main reason for the dip in sales were very competitive bank interest rates. A guaranteed 5.5% 1 year walk-away CD rate looks pretty good against the uncertainty of an index-annuity rate that might be zero, and would at best be 2% to 3% higher. I’ve tracked CD rates and fixed annuity sales for two decades and every time CDs have gone up, fixed annuity sales have either flattened or fallen. However, the NASD’s 05-50 anti-annuity notice did harm sales for a few carriers that failed to get on broker/dealer approved product lists. Most noticeable was the decline in Allianz sales from $8.8 billion in 2005 to $6.7 billion in 2006. 2005 ended with 46 carriers selling index annuities and 2007 begins with 58 index companies active in the market. Although 2006 was troubled, we estimate there are $109 billion of in-force index annuity policies on the books. Top Carriers By Channel
Average Fixed vs. Average Index Premium blew away 2005 total premium of $186 million to increase 82% in 2006 to $338 million. For a little perspective, Aviva (AmerUs) did more premium in 2006 than the entire industry did in 2004. Index Annuity Complaints Skyrocket 4/07 Last year, in response to security regulator allegations of bad index annuity selling practices, I used a slide titled “Smoke vs. Fire” showing that consumer complaints concerning index annuities were relatively few and that these allegations were mostly smoke and little fire. After reviewing consumer complaints for 2006 I can unfortunately state that there is fire now. In 2006 the index annuity carriers averaged one customer complaint for every $119 million of premium sold, this compares with a rate of one complaint for every $310 million in 2005 and one complaint for every $614 million in 2004. Because the average premium has remained pretty much the same over the last three years what this means is there were five times as many complaints in 2006 as there were in 2004. By contrast, variable annuity complaints have steadily declined. In 2004 variable and index annuity complaints were on a par, but by 2006 for every one variable annuity complaint there were eight index annuity complaints based on premium sold. The National Association of Insurance Commissioners (NAIC) gathers data on customer complaints from all of the state insurance departments. This information is available on the Consumer Information Source (CIS) part of their web site http://www.naic.org/cis/index.do on a company by company basis. I reviewed and totaled the number of closed customer complaints for 2006 relating to index annuities and variable annuities for the entire universe of all of the index annuity writers and the 25 largest sellers of variable annuities. I was able to find individual complaint statistics on each company.Index
Annuity complaints have increased fivefold in 2 years while VA complaints have
fallen While all index carriers averaged one complaint per
$121 million of premium sold the top 25 carriers averaged one complaint per $119
million. In 2005 there were 87 complaints for the top 25 carriers and in 2004
there were 35 complaints.
Sun Life was the top seller of index annuities with zero
complaints and others in the top 25 with zero complaints were LSW, CUNA Mutual,
Protective/West Coast Life, Standard Life of Oregon, RBC, Lafayette Life and
Union Central. There are seven carriers that have never received a complaint in
the five years I have been compiling statistics. Suitability Complaints Caveats It should also be noted that annuity complaints
in the NAIC files represent but a small piece of all insurance complaints. Last
year annuity complaints were only a fraction of life insurance complaints, and
there were 8 times as many complaints against auto insurance and health
insurance as there were against life insurance and annuities. Bottom Line Your Own Personal Price Index 5/07 The Social Security Administration announced income benefits would increase 3.3% for 2007. Where did they get that number from? It is the percentage increase from the fall of 2005 to the fall of 2006 in the Consumer Price Index for Urban Wage Earners (CPI-W) and tries to show how much the cost of living went up in the previous year. However, the average inflation rate may not be your inflation rate, and your cost of living might have gone up more, gone up less, or even gone down, when compared to the average CPI. A large part of the cost of living is where you do the living. Although citizens in the South and West pretty much matched the national average, last year the average Midwesterner saw prices go up by only 2.4% if you factor in the Social Security benefit increase these folks might even have more purchasing power than they did a year ago, even after inflation. But folks in New England saw prices go up 3.6%, so, even after receiving the 3.3% benefit increase they still lost ground. A large part of the cost of living is how you do the living. For example, if you stay home and cook you didn’t lose as much because your grocery bill only went up 2.4%, but if you eat out your tab increased 4%. Gasoline was especially pricy increasing 13% last year and was a big factor in pushing the overall inflation rate up; however, if you use public transportation your average fare was up 4%. And another part of your cost of living is how much you spend on different things. The average cost of prescription drugs rose 4% in 2006 and the cost of dishes fell 7%. Although both drugs and dishes are included in making up the CPI, I’m guessing most folks on Social Security spend a lot more money on the first one, so they’re really not benefiting from cheaper dishes, clocks and infant apparel three areas where prices went down. All this really means that the rate of inflation is personal and your inflation rate is probably different from what the government says, and this means it makes sense to keep an eye out for bargains and keep your personal price index as low as possible. It also means you need to keep a careful eye on the yields you earn. As an example, say you’re getting $400 a month in extra interest income from some savings you’ve put aside. If your personal inflation rate is 3% a year that means that savings would need to produce $412 a month next year to keep everything copasetic. If you’re still earning $400 and need $412 you can probably tighten your belt a little and get by. But if the same 3% inflation rate continues you’d need $425 in two years to equal what costs $400 today, and in ten years $537 would be needed. You basically have two choices – keep buying smaller belts, or try to make sure what you’re earning covers both the $400 and allows you to keep some of the return and let it compound so it will help future earnings offset inflation. You have several safe money choices. If you’re looking at bank options be sure to shop around and see if the bank down the street is paying more than the bank on the corner. Fixed annuities offer a special advantage because interest that remains inside the annuity and is not taken out compounds without current taxes being owed. You might even want to consider putting some money into I Bonds, which are savings bonds that earn interest indexed to the Consumer Price Index. But I Bonds are for compounding only; they don’t work if you need to take the interest out each year. Even though inflation is lower than it was 20 years ago it still nibbles away at your money. However, savvy spending and saving can whip inflation. By the way, if you’re interested there is a mind-numbing amount of inflation information available at http://www.bls.gov/cpi.
Index Annuity Sales Drop in 1st Quarter 06/07
Average Fixed vs. Average
Index Premium Average Commission The
Myth Of A Retirement Crisis? 06/07 Social Security? Going
Bankrupt Why is all the talk so gloomy? One reason is
that saying things aren’t so bad doesn’t generate revenues. The public has the same problems in getting opposing
views on retirement realities that they do when asking a surgeon if they need
surgery or a mechanic if their car needs brakes. No one gets paid unless they
cure a problem. A story that Social Security will be around and that most
boomers have enough money to retire on (and for the few that don’t, they never
will) is not something the industry and financial press wish to highlight,
especially if it turns out to be true. This article talks about new research that indicates there
may not be a crisis. The research does not say that everything is hunky-dory,
but says that most retirement related concerns – including Social Security –
do not need radical surgery but if anything merely may need to be tweaked.
Something to keep in mind is this is presented to give readers different views
on retirement planning; I’m not championing a no-retirement-crisis cult. Why
Does Everyone Say There Is A Crisis? The second related reason given for the crisis is inadequate
retirement income. The typical measurement of adequate income is
replacement rate – how much of the pre-retirement income is being replaced.
The problem is the replacement rate isn’t comparable across income levels.
Although one couple may say they can’t live on less than a quarter million a
year, they may be able to squeeze by on 60% of that amount, but a couple making
$40,000 a year working fulltime may need 100% of that income in retirement
because savings in commuter expenses would be offset by uncovered medical bills.
One researcher uses an income approach with the federal poverty line income as
the “absolute” adequacy minimum because it is by definition the minimum
needed and this is relayed in the next section. The other study looks at
“’optimal” net worth. (The final reason stated is that Social
Security won’t be around, but to learn more you'll need to read my
August column in Senior Market Advisor). “Most
households can expect to have sufficient total resources to finance adequate
consumption in retirement” Retirement
Income What they found was half of retiree and pre-retiree (going
down to age 50) couples have or will have an income of at least $40,000, and
some couples have very substantial incomes – this can be seen in that even
though the median income for a couple is $40,000 the average income is $73,000 (the very top retirees have a lot of
income and that is pulling up the average). Where is this income coming from? Half of the folks
have current IRA/401(k) balances of more than $60,000; 38% own annuities or life
insurance, and another 38% get or will get a defined benefit plan pension. These
folks will rely on financial assets and a bit of Social Security. On the other side, half of the folks have current
IRA/401(k) balances of less than $60,000; 62% don’t own annuities or life
insurance, and another 62% don’t have a pension. For these people Social
Security income is crucial. Non-financial assets, almost entirely housing,
represents about $9,000 of that $32,000-single $40,000-couple Mean annual
income. What this translates into is the wealthy will leave the house(s) to the
kids, but most folks will “consume” the house to produce income at some
point in time. Based on the research 88% of retires will have an
“adequate” income in retirement, adequate being defined as above the poverty
line, and 50% of couples have or will have an annual income in today’s dollars
of more than $40,000. It is also their conclusion that those near or under the
poverty line either currently or projected cannot be helped because their
situation is usually due to some life crisis such as early disability. Are People Saving Too
Much For Retirement? Does $12,186 represent an adequate retirement income? At
that income level there are government programs designed to help people get
“enough”. But for that matter is the Mean couple income level of $40,000
adequate, or even $150,000 for the first couple I mentioned? Only the retiree
can answer what is adequate for them. “Fewer
than 20% of households have less wealth than their optimal retirement targets”
Saving Optimally What returns are assumed? A real rate of return of 4% What
about uncovered medical costs or nursing home charges? They built in the
probability of having four consecutive
years (prior to death)
of incurring $60,000 of
out-of-pocket medical expenses. Why does their study
conclude that 4 out of 5 people either have, or are on target to have sufficient
retirement assets, while many others don’t? It is the treatment of the house. There are those that refuse to consider the home as a
financial asset and thus exclude it as a possible income source, and Scholz etal
also find when you remove the house the percentage of folks saving optimally for
retirement drops to 61%. However, he argues that the house is simply another
financial asset and it is illogical not to use the asset to produce retirement
income if needed. The conversion of the home is the main reason both research
teams show why a crisis is avoided. Summary Crisis or not, there are many steps that might be taken. For folks near the lower end of “adequate income” they should probably make every effort to stay in the workforce and delay receiving Social Security benefits as long as possible – retiring at age 62 cuts lifetime benefits 25% instead of waiting to age 66, and if cash flow is getting tight converting low or no yielding assets to an immediate annuity might be worth considering. For risk averse folks a variable or index annuity with a guaranteed lifetime withdrawal benefit offers the peace of mind of a guaranteed and potentially increasing payout, so money may be allocated more aggressively than one’s timidity might permit. For over-savers it’s a
matter of priorities. Might an annuity GLWB somehow be connected with a
remainder trust to better benefit both sides? Could longevity insurance be used
with a term certain immediate annuity or to justify taking a more aggressive
portfolio payout? Whether or not there is a crisis the insurance industry will
play an increasingly important role in improving an individual’s retirement
quality. Does
A VA With A GLWB Make Fixed Annuities Obsolete? 7/07 Many variable annuity proponents have been telling me
that a VA with a GLWB makes index annuities and fixed annuities obsolete because
of the guarantees. What I often hear is that since a GLWB provides guaranteed
payouts and often guarantees simple interest growth of 5% to 6%, that it is
essentially better than a fixed annuity because it offers a higher minimum
guaranteed growth rate and the potential for higher returns. But these folks are
confused as to why people buy fixed annuities and variable annuities. With a fixed annuity your
principal is protected from loss, and if you do decide to take your money and
leave, you know pretty much what leaving early will cost. A variable annuity,
even with a GLWB, protects only the income and not the principal; the principal
is still fully exposed to market risk. If you own a stated rate or index annuity and
cash it in you will get back your original principal plus minimum guaranteed
interest and any additional interest credited to the policy, less any surrender
charges. If you own a variable annuity with a GLWB and cash it in you will get
back the market value of the annuity less surrender charges – there is no GLWB
cash value. The cash value of the variable annuity will be higher or lower than
the fixed annuity, reflecting the market risk and potential gain inherent in
investments. If a consumer’s primary goal is to protect their principal from
market risk they should not buy a variable annuity, with or without a GLWB,
because it will not give the protection. If a consumer wants the freedom to
maintain access to principal without market risk they should not buy a variable
annuity, with or without a GLWB. The GLWB guarantees an income level and the possibility of having
money available in future years if needed or at death. A VA GLWB should only be compared with fixed annuities on
the basis of producing an income and offering this lump sum possibility. A valid comparison could be made on the respective payout
levels of VA and fixed annuity GLWBs and what scenarios would result in the VA
or fixed annuity having more money, or any money, available upon policy
surrender or at death. A fixed annuity is regulated as a savings vehicle, a
variable annuity is regulated as an investment security. Guaranteed living
benefitreduce the risk of owning a variable annuity, but they do not turn it
into a fixed annuity because principal is still subject to market risk. lllusion
of Validity 8/07 When I heard this I had a flashback to the fall of 1999
when another young stockbroker/planner told me his clients didn’t need index
annuities because he was using tactical
asset allocation and thus they were protected against market risk of loss –
and based upon what he described his typical client would have lost roughly half
of the value of their “tactical” portfolio in the millennium bear market
that followed. The market has risen for four years. At the end of May the
S&P 500 finally passed the old high set seven years before. The market
exuberance is more tempered than the last time around. However, just as markets
have never dropped to zero neither do they keep going constantly up. If you look
back over the last 60 years the market has failed to increase a fifth year in a
row 90% of the time. The problem for a lot of investors and advisors is if
they’ve invested in the stock market for the last four years they’ve been
right, and all
of this “proof” results in something called an illusion of validity wherein we think we
will be right in the future because we were right in the past. But, this all
overlooks something my first manager told me years ago, which is never confuse
brains with a bull market. Unfortunately,
there are many people that believe the “new” stock market has two phases –
up a little and up a lot. If the market does what it has always has done in the
past it will fall, and then rise again. If you are in for the long term and can
emotionally handle the risk, it’s usually smart just to ride it out. However,
every time a bull market extends its time in the arena it attracts folks and
money that probably shouldn’t be there because risk of loss is not fully
appreciated, and neither these folks nor dollars can truly handle a potential
loss. For these people and this money fixed annuities with a
stated or indexed interest rate can often make sense. Index Annuity Returns - The Best & Worst 8/07 The charts below show, respectively, the best and worst first year interest credited over the previous 12 months based on rates, caps and spreads in effect at time of purchase for all of the index annuities on the market. Please note, most index annuity carriers group the applications received, so the chart shows what interest “woulda” been if all of the annuities had issued policies at the end of each month.
2nd Quarter Index Annuity Sales Rebound 09/07 The Advantage Index Product Sales Report produced by AnnuitySpecs.com shows second quarter 2007 index annuity sales were $6604 million compared with sales of $5734 million for the previous quarter. Second quarter sales were up 15% when compared with first quarter sales; up 3% compared with the same period one year ago. The top ten carriers
for the second quarter:
Average Fixed vs. Average
Index Premium Average Commission
Retirement
Assets Are 40% Of Total U.S. Household Assets 09/07 Of the $1,578 billion in non-qualified annuities the
composition is $924 billion variable annuity, and I estimate $600 billion fixed
rate and $54 billion fixed index annuity. The securities industry managed 85% of IRA assets,
while insurance carriers controlled 8% and banks managed 7%. Over the last dozen years the share of the 403(b)
assets controlled by insurance carriers declined from 66% to 47%. The dollars invested in Lifestyle mutual funds (whereby
bond fund allocations are automatically increased as age increases) more than
doubled from 2004 to 2006 and represent $189 billion.
Data
Source: Research Fundamentals. Investment Company Institute. July
2007 Vol.16, No.3, 3A
Crossing
The Line 10/07 My fellow stockbrokers noticed that planners were making
money and would discuss the merits of acting like financial advisors instead of
brokers. I would bring up the point that the advisor angle had a downside and
that was one would be held to a higher standard. Security Salespeople The attraction of greater commissions caused a bunch of
stockbrokers to hold themselves out as financial planners, but they were still
acting, trained and selling as stockbrokers. Unfortunately, consumers couldn’t
always tell the difference between legitimate and illegitimate advisors and many
suffered for it. The result was security regulators did two things: they raised
the standards for stockbrokers requiring greater disclosure, more training, and
put the onus on the broker/dealer to ensure all investments were suitable.
Second, the regulators said if you were going to hold yourself out as a general
financial expert you needed the training and regulatory credentials to act as
one. These two steps didn’t eliminate the problem, but it did result in more
bad apples being punished for pretending to be investment advisors. Annuity Salespeople There were a couple of ways to deal with this
misperception. The first would have been for the industry to educate consumers
on what a fixed annuity could do for them, the benefits it would provide, and
therefore change the perception of the consumer so that when they heard the
phrase “annuity agent” they would think “flexible safe money instrument
offered by an annuity professional” instead of the old narrow misperception.
The second way to get thru to the consumer would be to disguise the fact that
annuities were being sold. The industry chose the second way. Euphemisms are an accepted part of our world. We don’t
say that Uncle Fred dropped dead; we say he passed away or crossed over. In real
estate a “sunny homestead” is a nicer way of saying there are no shade trees
on the lawn. And I talk about fixed annuities as being a safe money place.
Regulators I have talked with did not seem to have a problem with agents saying
they offered tax-advantaged interest earning financial vehicles that are
protected from market loss, and even permitted some puffery, because, after all,
annuity producers are agents for the insurance company that pays them a
commission on the sale of the annuity, and are not expected to act as impartial
fiduciaries. But then a line was crossed. To enhance their understanding of seniors some agents took
courses that gave them a better understanding of the needs of seniors, and
usually the course provided some designation showing completion. However, some
agents represented the designation as proof that they were qualified to solve
all of a retiree’s financial problems, even tho the agents were still licensed
and acting as annuity salespeople. Some agents honestly dislike the risk of stock market
investments and some agents honestly believe that fixed annuities are a better
place than banks for a retiree’s money. However, instead of presenting these
opinions as opinions to consumers the agents instead represented themselves as
impartial trained financial advisors, even tho the agents were still licensed
and acting as annuity salespeople. Once again regulators are faced with a situation
wherein consumers can not tell which one is the legitimate trained advisor and
which is the salesperson, and so the regulators are attempting to punish those
that pretend to be investment advisors. There is a problem and it is currently
causing a great deal of finger-pointing and yelling on all sides that really is
not accomplishing anything. But I believe some things can be done to help
consumers, regulators and annuity producers address the issues. Define
& Defend Fixed Annuities
– The industry needs to broaden the consumer perception of what a fixed
annuity is and what it can do. This means courting the various financial writers
that are getting all of their annuity education from stockbrokers and telling
the annuity industry side. This means creating consumer educational resources on
fixed annuities (look at the Investor Education Resources section of the
Investment Company Institute web site for inspiration). It also means insurance
regulators need to speak up when a security regulator says something inaccurate
and to correct their counterpart’s views. Create
A Safe Harbor For Annuity Advice
– The agent can hold seminars on the good points of annuities, buy seniors
lunch and thrill them with the magic of tax deferral, and all of this falls
under the auspices of the insurance license. Security regulators are prosecuting
annuity producers for stepping over the line and acting as investment advisors,
but the regulators will not tell the producers where the line is. The security
and insurance regulators need to define when the line is
crossed. When does fixed annuity advice and free speech become investment
advice? Get
Rid Of Bad Apples
– I have read far too many regulatory complaints and lawsuits where
the agent involved was convicted of other bad behavior in the past, and yet the
agent still has an insurance license, still found a marketing company to work
with, and still found an insurance carrier to secure an appointment. Whenever I
bring this up the parties involved point their fingers at the others for not
acting; however, there is nothing to stop a marketing company or carrier from
refusing to work with an agent. Bad agents are not a protected class. The lines between
financial professionals will continue to be redrawn and the bar in the insurance
industry for getting and keeping an insurance license will be raised, just as
both stockbrokers and advisors are held to higher standards than they were in
the past. The bottom line is the consumer will be aided by more experienced and
better trained professionals and all will benefit.
Positive Annuity Article in New York
Times 10/07
5 Year Index Annuity
Returns 11/07
FIAs credited from 27% to 254% more interest than the average CD over the
last 5 years The S&P 500 was running at an annualized return
rate of 13.4% for the period and the average U.S. stock mutual fund hit 16.1% a
year, a strong statement demonstrating that index annuities are not designed to
compete against equity investments. However, the average annualized index
annuity yield of 6.12% compares very favorably to the 5.0% attained yearly by
the average taxable bond fund return, blew the socks off the 3.5% that was
earned by a U.S. Savings Bond issued in September 2002, and pole-vaulted over
the 2.5% achieved by the average CD over the same 5 years. Once again, index annuities did what they were supposed
to do – be a safe money place with the potential for more interest.
3rd Quarter Index Annuity Sales Slip
Average Fixed vs. Average Index Premium Average Commission
ARC Finds Momentum Fading for Interstate Compact The Annuity Regulatory Compendium states that of the eight states that attempted to pass the Interstate Insurance Product Regulation Compact in 2007 only Tennessee joined; the remaining states let proposed legislation die in session; four states (Illinois, New Jersey, New York, Wisconsin) and the District of Columbia, still have proposed legislation pending. Although 30 states now participate in the Compact the momentum for joining seems to have abated. One reason for the remaining states’ apparent reluctance to join may be a fear that the state legislature’s ability to have local oversight of insurance issues will be compromised, according to Danette Kennedy, cofounder of Annuity Regulatory Compendium and president of Gorilla Compliance
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| Copyright 2008 Jack Marrion, Advantage Compendium Ltd., St. Louis, MO (314) 434-6030. webmaster at indexannuity.org. All information is for illustrative purposes only, does not provide investment or tax advice. No index sponsors, promotes, or makes any representation regarding any index product. Information is from sources believed accurate but is not warranted. Advantage Compendium neither markets nor endorses any financial product. |
