EIA Podcast

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NASD Newbie's picture
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I am on a distribution of NASD regulations.  This came this afternoon.  I have no idea if the link will take you into their site or not since it may require cookies or something.
If it does you'll find the page mentions EIAs and there is a small link that says, "Listen to Podcast."  Click it and if you have Real Player or Windows Media Player or a bunch of other that play MP3 files you should be able to hear it.
It lasts about 7 or 8 minutes and is interesting.  What those of you who are selling these things need to know is that the NASD has them, and you, under a microscope.
I know of small firms who simply will not touch them because of the danger of court rulings in the future.  They're scary products--in fact this is a scary industry with more and more enforcement issues as the aging boomers are taken advantage of.
http://www.nasd.com/RulesRegulation/ComplianceTools/NASDPodc asts/index.htm

babbling looney's picture
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The regulation avalanche is already in process.   My B/D sent out compliance memos last week stating several significant things.


  • E&O insurance will not cover unregistered indexed annuities with a company rating not A or better

  • They are considering having EIAs go through the company insurance program or giving us a list of approved companies

  • If the proceeds for the annuity come from the sale of a security whether existing at our B/D or elsewhere the trade must go through the standard trade review process

  • A suitability worksheet will be completed and sent with the trade for review.

  • More regulations are in the works.....

Even though these types of annuities will still be treated as outside activities by the B/D the consensus is that the NASD is considering that they be subject to the standard suitability requirements of securities trades.  Know your customer and all that jazz.
I have a friend who has an insurance agency and he told me that they have been advise that the new name for Equity Indexed Annuities is now going to be Fixed Index Annuities.    Riiiiight.....that will fool 'em.

knucklehead's picture
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Joined: 2006-07-27

Big deal. More paperwork. What else is new?

FreedomLvr's picture
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babbling looney wrote:
The regulation avalanche is already in process.   My B/D sent out compliance memos last week stating several significant things.


  • E&O insurance will not cover unregistered indexed annuities with a company rating not A or better
  • They are considering having EIAs go through the company insurance program or giving us a list of approved companies
  • If the proceeds for the annuity come from the sale of a security whether existing at our B/D or elsewhere the trade must go through the standard trade review process
  • A suitability worksheet will be completed and sent with the trade for review.
  • More regulations are in the works.....

Even though these types of annuities will still be treated as outside activities by the B/D the consensus is that the NASD is considering that they be subject to the standard suitability requirements of securities trades.  Know your customer and all that jazz.
I have a friend who has an insurance agency and he told me that they have been advise that the new name for Equity Indexed Annuities is now going to be Fixed Index Annuities.    Riiiiight.....that will fool 'em.

Actually Babs, that's not really a new name for them, it's what they always should have been called.  Jack Marrion from the Advantage Group (www.index-annuity.org, try it w/o the hyphen, i can never remember exactly how it goes) has been calling them "Fixed Indexed Annuities" for years and advocated officially changing the name.  He felt that the term "Equity" in their name was deceptive and would encourage clients to believe they were getting true market participation, which really isn't so.  He always calls them "Fixed Indexed Annuities", because that's what they really are.  It's definitely a shame that the insurance companies are only now, with NASD/SEC/media pressure considering making it official.
There are DEFINITELY a lot of carriers selling FIA's that are just about the worst thing a client could ever buy (except "Medpatent", for all you Boiler Room fans).  However, for a client that was looking at fixed annuities, CD's, money market-type places to put their dough a FIA was a reasonable alternative.  I really don't feel they're NEARLY as competitive now that rates have risen on said above products, but many are still a viable alternative.
And honestly (I'll probably get flamed for this one), it doesn't seem unreasonable for a b/d to oversee this type of business, or even all insurance business that one of their reps produces.  Any lawsuit will invariably include the b/d in the list of defendants (defendents?) and all they'll have is an OBA form to defend themselves with.
Well, that and an army of attorney's, but you get the picture.  Agree?  Disagree?  I haven't really gotten into deep debates on this topic, so I'm curious as to what everyone thinks...

anonymous's picture
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Joined: 2005-09-29

I've never been a fan of them and have never sold one, but if they are sold in an honest manner, there is nothing wrong with them.  There is no question that the  more appropriate term is fixed indexed annuities because that is exactly what they are. 
They are fixed annuities.  The only difference between them and a traditional fixed annuity is the crediting method.  Traditional fixed annuities are credited based upon the insurance company's general account.  Fixed index annuities are credited based upon a change of an index.
There is no reason to expect an FIA to perform better than a traditional fixed annuity, but it's possible.  FIAs are appropriate for anyone who wants a fixed annuity, but is willing to take the chance that they MIGHT get better returns.
P.S.  I do feel that they are sold inappropriately most of the time.
P.P.S. I feel that the NASD is overstepping their bounds on this one since the money is not invested in the market.  It is the insurance industry that should be fixing the problem. 

troll's picture
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Joined: 2004-11-29

anonymous wrote:
They are fixed annuities.  The only difference between them and a traditional fixed annuity is the crediting method.  Traditional fixed annuities are credited based upon the insurance company's general account.  Fixed index annuities are credited based upon a change of an index.. 

That Index being an equity index, eh? Come on, they're dropping "equity" in an attempt to avoid oversight by the people that oversee equity market sales practices.

anonymous's picture
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Joined: 2005-09-29

"Equity" should be dropped from the title because the money is not in equities.  The name "Equity Indexed Annuity" makes people think that they are invested in equities. 

NASD Newbie's picture
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anonymous wrote:"Equity" should be dropped from the title because the money is not in equities.  The name "Equity Indexed Annuity" makes people think that they are invested in equities. 
Where is it invested?

ezmoney's picture
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Joined: 2004-11-30

I believe it's invested in the general accts. of the insurance Co. because it's technically a fixed annuity. The insurance Co. credits the client's acct. should the index perform as outlined in the the contract.

knucklehead's picture
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Joined: 2006-07-27

anonymous wrote:"Equity" should be dropped from the title because the money is not in equities.  The name "Equity Indexed Annuity" makes people think that they are invested in equities. 

Did you parents have any children who live to adulthood?
People like EIA's because the are NOT in equities. Do you realize how stupid you sound, most of the time?

NASD Newbie's picture
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ezmoney wrote:
I believe it's invested in the general accts. of the insurance Co. because it's technically a fixed annuity. The insurance Co. credits the client's acct. should the index perform as outlined in the the contract.

If it's linked to stock prices it's a security--thus the concerns of the NASD.
What is very likely to happen is the NASD will rule that it is a security, it was not sold as if it were, and therefore anybody who asks for their money back will be given their money back.
There will be charge backs against salespeople and some firms may bankrupt under the weight of the ruling.
It's foolish to consider the NASD to be some sort of paper tiger while laughing about how much you're screwing your clients.

knucklehead's picture
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Joined: 2006-07-27

NASD Newbie wrote:ezmoney wrote:
I believe it's invested in the general accts. of the insurance Co. because it's technically a fixed annuity. The insurance Co. credits the client's acct. should the index perform as outlined in the the contract.

If it's linked to stock prices it's a security--thus the concerns of the NASD.
What is very likely to happen is the NASD will rule that it is a security, it was not sold as if it were, and therefore anybody who asks for their money back will be given their money back.
There will be charge backs against salespeople and some firms may bankrupt under the weight of the ruling.
It's foolish to consider the NASD to be some sort of paper tiger while laughing about how much you're screwing your clients.

That was funny.

Mike Damone's picture
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Joined: 2004-12-01

Newbie, a lot of banks and credit unions offer market index certificates.  Moving forward, do you think only series 6 or 7 reps be able to offer these products?

babbling looney's picture
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Joined: 2004-12-02

Mike Damone wrote:Newbie, a lot of banks and credit unions offer market index certificates.  Moving forward, do you think only series 6 or 7 reps be able to offer these products?

Yes.

NASD Newbie's picture
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babbling looney wrote:
Mike Damone wrote:Newbie, a lot of banks and credit unions offer market index certificates.  Moving forward, do you think only series 6 or 7 reps be able to offer these products?
Yes.

Good lord woman, if you get branded as Newbie you're going to be knee deep in it.
Regarding the question--what she says.

jonesescapee's picture
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Joined: 2006-05-23

NASD Newbie wrote:babbling looney wrote:
Mike Damone wrote:Newbie, a lot of banks and credit unions offer market index certificates.  Moving forward, do you think only series 6 or 7 reps be able to offer these products?
Yes.

Good lord woman, if you get branded as Newbie you're going to be knee deep in it.
Regarding the question--what she says.

Newbie you are the best!

brkrpro's picture
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Joined: 2006-08-24

Good point

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