I've been predicting for some time that equity indexed annuities and the sales practices associated with them will be the next big scandal financial services industry. And now my predictions are coming true.
After a chorus of complaints, the National Association of Securities Dealers (NASD) and the Securities and Exchange Commission (SEC), finally taking notice. At a recent conference in Chicago securities, NASD officials warned convergent brokerage firms they are opening themselves to civil liability where equity indexed annuities in question.
The NASD also clearly stated its authority to supervise the suitability of the transactions relating to equity indexed annuities. "Every time you make unsuitable recommendations, we have jurisdiction," said Jim Shorris of the NASD.
This is good news for investors and bad news for the charlatans who have been using this product in the milk of people over thousands dollars. Now, investors can turn to the NASD for help. The actions of the NASD also increase the potential success of civil lawsuits filed by investors.
It's not just the NASD is taking note. Recently, I was invited by the Financial Planning Association to participate in a conference call with officials of the SEC. The SEC had looked to equity indexed annuities for several years, but no action. Hopefully this time will be different.
You can not think that NASD or SEC involvement is all that revolutionary, but it is. Let me explain. Brokers who are licensed to sell investments are regulated federal level. The NASD and SEC police their actions.
Equity Indexed Annuities, however, are not regulated at the federal level, but each insurance State Commissioner. Although equity indexed annuities are technically an insurance product, sold as an investment. But all an agent has to do to to sell them is to sit through a five-day course and pass a simple test in health and life insurance.
It used to be that equity annuities Indexed are primarily sold by independent insurance agents. Now being sold by agents working for big brokerage firms. High commissions these payment products are simply too tempting. Worse, these agents are not selling under the umbrella of your company. Are being sold as what is called a 'Business outside. "
That means that despite speaking with a person who works for a large brokerage house and that person you want to sell your annuity variable, pay a fine and spend money in an equity-indexed annuity, the company is the police will not compromise. Each trade made by the agent must comply with strict compliance and regulatory standards. Sales of equity indexed annuities do not.
If an advisor were to place 100% of the investable assets of a client in a variable annuity or an individual stock or mutual fund, probably would face fines and possible revocation of his license. At least, it would opening themselves and their company to potential claims. However, I often hear from the consultants to tell a client that should put 100% of their money in annuities Equity Indexed.
Under federal regulations, an advisor can not recommend a client to pay a penalty of 7% to leave and move to an annuity then move the money into another high commission product. That's like getting a stockbroker who constantly buy and sell stocks so they can earn a commission and is called churning. However, I see that advisers with 'bonus' to offer some equity-indexed annuities do just that.
Now that the NASD has stated clearly that these advisors can no longer sell shares outside the regulatory umbrella indexed annuities your company, we hope that some of these unethical practices in sales be put to a stop. But investors need to beware! High commissions offered by these products, sometimes as high as 13%, are too tempting for consultants many to ignore. Do not expect to change their ways overnight.
The increasing control of equity indexed annuities can only be good for the investor. Careful investigation of this and any other investment before you buy. Otherwise, an investment could be quickly regret.
Equity-Indexed Annuities (SaveURRetirement.com)
Related posts:
Comments on this entry are closed.