SEC Rule 151A

75 replies [Last post]
ExPropTrader's picture
Offline
Joined: 2006-11-19

I've searched the forums and can't find anything discussing SEC Rule 151A, does anyone really want more compliance?

Wet_Blanket's picture
Offline
Joined: 2008-11-13

I'll discuss it with you, but first...WTF are you talking about?

Moraen's picture
Offline
Joined: 2009-01-22

WB - it's the rule about annuity contracts.

EPT - what are your concerns?

ExPropTrader's picture
Offline
Joined: 2006-11-19

Moraen wrote:WB - it's the rule about annuity contracts.

EPT - what are your concerns?That if it passes it will be just the beginning, next will be ALL fixed annuities, then life insurance, then who knows what else.  Eventually you'll have so much compliance and crap to deal with that we wont be able to make any money for all the paperwork.Not to mention the fact that it makes no sense, I mean I can call my car a Ferrari all day long but it doesnt make it go any faster or change the fact it has 4 doors.

Gaddock's picture
Offline
Joined: 2007-02-23

From what I understand the agent side all you have to do is pass the series 7 or register as an RIA in the states you do business in. What's the big deal?

Gordon Ramsey's picture
Offline
Joined: 2009-07-09

Who do you think is going to be taking their haircut on the commissions of the EIA that you sell?
 
This is a power grab and nothing more.  151a needs to be stopped.

anonymous's picture
Offline
Joined: 2005-09-29

Gaddock, being an RIA doesn't help since an RIA can't sell securities.  As for taking the 7, it's a huge deal.  There's a bunch of reasons for this.
1) First and foremost, an EIA does not meet any reasonable definition of a security.  If an EIA is a security, so are all fixed annuities, all life insurance products, savings accounts,  etc. 
 
2)Making it a registered product means that a B/D gets to get a big chunk of money that they don't deserve.
 
3)Once a person becomes registered, they no longer have the freedom to run their business in the way that they want.
 
4)This is a power grab and nothing more.  151a needs to be stopped.
 
My B/D doesn't allow me to sell EIA's which is complete B.S.

Gaddock's picture
Offline
Joined: 2007-02-23

OK then, the other side of the coin. I'm always eager to hear those that are passionate about a subject I know little about. I'm sold.
 
Down with 151A !!!!

Squash1's picture
Offline
Joined: 2008-11-19

Forget that pass 151a.. so punk insurance guys who create bad names for EIA on 20/20 can be more responsible.(not that the series 7 is hard, but it will weed out some of the rif raf)..
 
I would think you EIA guys(including me) would be all for this..

Gordon Ramsey's picture
Offline
Joined: 2009-07-09

I don't need a compliance officer to tell me if an annuity is suitable for a client or not.
 
I think FINRA is a horrible regulator.  I think 50 state regulators do a better job (and they have guns).
 
I think amateur insurance agents are AFRAID to talk about the "bad" sides of the products they sell:  surrender charges for example.  They're afraid that if they mention them that they'll lose the sale.
 
Well there's 2 problems there. 
1)  the agent isn't prospecting enough so he seems to "need" every sale. 
2)  the agent isn't disclosing the features of the product well enough so the other person can make an educated decision.
 
I'm not an amateur.
 
But that doesn't mean that having EIAs sold through B/D is the answer.  EIAs are just like any other insurance product.  What FINRA wants to do is FINE B/Ds and FINE reps and RESTRICT who can sell a product that has no principal risk to the investor.
 
In short, they want more money, power and control and they don't deserve it.

henrybar's picture
Offline
Joined: 2009-09-22

Didn't you just admit to the problem, insurance guys no liable for their lack of disclosure?
 
What would you suggest instead.
 
I think 151a at least helps a little. Not the overall answer, but haven't heard of a better one... Other than better disclosure on forms(those things don't disclose half the issues, or do it in the middle of a paragraph. Should add another disclosure(like the one my buddy has through his b/d... it show how much rep is compensated, surrender periods and and surrender penalties for each year and client has to sign on bottom)

Baldy McGrindy's picture
Offline
Joined: 2009-10-01

I agree with squash.  I already can sell them.  screw everyone else if they can't. 

Gordon Ramsey's picture
Offline
Joined: 2009-07-09

Compensation is BS.  No one knows and no one cares.
 
A regulatory summary page for all annuities that keeps them transparent - like type (FA, FIA), surrender charges & schedule?  Might not be a bad idea.  Would need NAIC to adopt it, but that still doesn't mean there aren't amateur agents who wouldn't disclose everything.
 
Insurance guys ARE liable for lack of disclosure.  However, what is the RISK?  If a RR doesn't fully disclose AND the client loses money, you have a REAL problem.  EIAs DON'T lose money!  So, what would happen?  The premium is refunded and the agent is charged back his commission - particularly if done in the first year.  Some EIAs do a charge back for ANY withdrawal in the first year.  So there ARE penalties to the agent if they don't fully disclose the details of how the product works... and it hits them right in the pocket book.
 
If insurance agents like keeping their earned commissions, they should document everything and disclose all the details of the products they are selling.  It's common sense.  But remember:  There's no market risk to the principle balance in the EIA so the agent should SELF-REGULATE his own behavior to avoid those charge backs of his commissions!

henrybar's picture
Offline
Joined: 2009-09-22

I think the issue regarding agents isn't commissions it's the surrender and after the first year, there is no harm to the agent if the client gets hit with a 15% surrender... AND THAT IS LOSS OF PRINCIPLE..

Gordon Ramsey's picture
Offline
Joined: 2009-07-09

Is there harm to a RR if a client gets hit with a surrender out of their VA after the first year?
 
That's a loss of principle AND if the shares are down, then its "reverse dollar cost averaging".
 
Who's at fault if a client needs money over and above the free withdrawal amount?  The client and their particular circumstances! 
 
But clients have SELECTIVE MEMORY - regardless of you being an insurance agent or RR or IAR.  Even if you fully disclose at the time of sale, clients WILL forget.  That's a given.  Our job?  To remind them of the original strategy and of the penalties for going above the free withdrawal amount.
 
Of course, you're probably thinking that all insurance agents just "sell and run".  The bad one's would.  The good ones want their clients to call THEM to process any withdrawals and leave the company out of it.  The problems come in when the client calls the COMPANY and the COMPANY tells them of the surrender charge - and later questions whether the agent fully disclosed that information.
 
Client service and periodic reviews would solve a lot of problems too.

Gordon Ramsey's picture
Offline
Joined: 2009-07-09

So basically, just like EVERY other regulation...
 
It's designed to PUNISH those that do a good job for their clients because "stupid is as stupid does".

henrybar's picture
Offline
Joined: 2009-09-22

VA surrenders aren't anywhere close to EIA surrenders..Also people can use arbitration to get help if they were improperly put in a VA
I think a lot of people don't qualify for them. Because they don't know how to or don't want to.
How does it punish those that do a good job?
 

Gordon Ramsey's picture
Offline
Joined: 2009-07-09

A % is still a %.  (BTW, I agree that anything over 10% surrender charge isn't a great product.  My EIAs have surrender charges that are as HIGH as 9% for the 1st year declining from there and only go as long as 10 years - similar to many bonus VAs that are out there.)

 
People CAN use arbitration regarding VAs.  People CAN sue insurance agents.  Do you actually ENCOURAGE them to do so?  If so, then you're a piker of the worst sort because  you DON'T KNOW what happened at the time of sale.
 
Agents who ARE doing a good job are having a product taken away from them because of a few who are doing a lousy job.  It's the same with every regulation and every compliance decision to MAKE YOUR JOB HARDER when you're simply trying to do what's best for your clients. 
 
Remember:  A product isn't evil or good.  It's just a tool in the hands of an agent.  It's all in how it is being used for the benefit of the client.
 
Should anyone ever put 100% of their money in one product?  No.  That's a foolish decision for any agent/advisor to make AND equally stupid for a client to do.  Remember that the client wrote the check and signed the application and accepted the contract.
 
Let me guess... you don't sell any annuities, do you?

Jebediah's picture
Offline
Joined: 2009-07-10

I think there are two reasons for 151a.  First, while an index annuity is an insurance product, it uses securities to generate returns.  Should a person who sells a product that uses securities be licensed to sell the underlying securities?  Second, and this is from strictly my own personal experience, EIA's are sold as stock returns with no downside.  Maybe this is uncommon and it is likely that I only see the people that are unhappy with the product.  However, the story I hear is consistent.

ExPropTrader's picture
Offline
Joined: 2006-11-19

First an EIA does not use securities to generate returns, securities are subject to market risk, an EIA is not.  Second if someone is selling an EIA as "stock returns" then THEY need to be punished, not the product, and finally if you have a client that is complaining that they DIDNT LOSE A DIME when the rest of the market was down 40% then you need to find a new client base cause you will get sued regardless of what you sell.Look at it this way, scores and scores of people are killed by automoblies every year, so do you outlaw cars or go after the idiot drivers?Most of my agents are already security-licensed so that's a non-issue, the real issues if 151A are : loss of income due to haircuts, the "snowball" effect  that will mean other products also being classified as "securities", loss of choice for clients, increased compliance, increased cost of doing business, more time doing paperwork and less time with growing the business, and numerous other issues.

ExPropTrader's picture
Offline
Joined: 2006-11-19

Gordon Ramsey wrote:
In short, they want more money, power and control and they don't deserve it.I wonder why the SEC wants more responsibility when they've failed so much lately with the duties they already have.

anonymous's picture
Offline
Joined: 2005-09-29

Jebediah wrote:I think there are two reasons for 151a.  First, while an index annuity is an insurance product, it uses securities to generate returns.  Should a person who sells a product that uses securities be licensed to sell the underlying securities?  Second, and this is from strictly my own personal experience, EIA's are sold as stock returns with no downside.  Maybe this is uncommon and it is likely that I only see the people that are unhappy with the product.  However, the story I hear is consistent.

 
Jebediah, using your logic, a fixed annuity should be considered a security.  The money goes into the general account of the insurance company.  The insurance company invests some money in securities.  Additionally, the rates are primarily based upon 10 year treasuries which are a security. 
 
As for EIAs being sold as stock returns with no downside, that is obviously incorrect, but making them registered products doesn't stop people from doing it.  Registered people can sell the products now.
 
Sorry, but no matter how we slice this, an EIA is not a security.  A hallmark of a security is investment risk.  There is zero investment risk in an EIA.

Baldy McGrindy's picture
Offline
Joined: 2009-10-01

Jebediah wrote: Second, and this is from strictly my own personal experience, EIA's are sold as stock returns with no downside.  Maybe this is uncommon and it is likely that I only see the people that are unhappy with the product.  However, the story I hear is consistent.
 
And this is from my own personal experience: myself, and a few other people i am friends with in this industry do not sell these as "stock returns" with no downside.  I use it as a bond/cd alternative that historically has outperformed those two asset classes.  The only people I know that are unhappy with having owned an EIA over the past 10 years are those that were missold to from the get go and are having liquidity/CDSC issues.  All of my clients couldn't be happier with their investments. 
 
Once again, any discussion of EIA's all come down to full disclosure to the client.  If you have that, you will never have a problem.  Period. 

anonymous's picture
Offline
Joined: 2005-09-29

The problem isn't a 20 year surrender charge.  After all, and this isn't quite apples to apples, a 25 year old putting money into a 401(k) has the equivalent of a 34 1/2 year surrender charge.
 
There is a problem with an insurance company approving a sale of a product with a 20 year surrender charge to someone who doesn't have 20 years.
 
My point is that the problem isn't the product.  It is how the product is sometimes sold, which is the same problem that all products have.

deekay's picture
Offline
Joined: 2007-05-15

AGEMAN wrote:anonymous wrote:The problem isn't a 20 year surrender charge.  After all, and this isn't quite apples to apples, a 25 year old putting money into a 401(k) has the equivalent of a 34 1/2 year surrender charge.
 
There is a problem with an insurance company approving a sale of a product with a 20 year surrender charge to someone who doesn't have 20 years.
 
My point is that the problem isn't the product.  It is how the product is sometimes sold, which is the same problem that all products have.
Yes, but they younger person who is stuck in a 401k may be stuck in the qualified plan until 59.5, but can change investments anytime they want to, but with an annuity with a 20 year surrender charge traps the person to that type of investment.  Big difference!!!
 
I'm not an EIA guy (my B/D won't allow me to sell them), but from what I understand, on certain EIAs you can change what index the crediting will be based on.  So, there is zero difference.  Well, except that unless you keep the money in the GIC, you can lose money in a 401k.  You can't lose money in an EIA. 
 
Like anon said, the product is not the problem.  Using the product incorrectly is the problem.

theironhorse's picture
Offline
Joined: 2007-03-03

How do you guys sell an EIA without ever talking "market" or "securities," since those opposing 151A without a securities license in place must not discuss this detail when explaining the product?

theironhorse's picture
Offline
Joined: 2007-03-03

And lets be honest and use real world here, (maybe not the cross section represented on this forum) the majority of sellers use them as a "market participation without the downside risk."  I have seen enough statements over the years, heard from plenty of clients, and sat in on way too many "presentations from wholesalers" while working at insurance companies to believe it is true.  It is an incredibly easy sale for a reason, it is incredibly easy to mis represent what it does and how it works.
I am not taking anyone here to task, I am just saying they are inappropriately sold way too many times.

deekay's picture
Offline
Joined: 2007-05-15

theironhorse wrote:How do you guys sell an EIA without ever talking "market" or "securities," since those opposing 151A without a securities license in place must not discuss this detail when explaining the product?
 
Again, I'm not an EIA guy, but I would imagine the conversation would go something like:
 
"Mr. Client, we have two options.  One, a traditional fixed annuity.  The other is a fixed indexed annuity.  The traditional fixed annuity has a higher guaranteed rate than an FIA.  The FIA has a minimum guaranteed rated but also gives you the potential for a higher rate of return than the traditional fixed annuity.  Which is more important to you?  A higher guaranteed rate?  Or, the potential for a higher rate of return?"

deekay's picture
Offline
Joined: 2007-05-15

AGEMAN wrote:deekay wrote:AGEMAN wrote:anonymous wrote:The problem isn't a 20 year surrender charge.  After all, and this isn't quite apples to apples, a 25 year old putting money into a 401(k) has the equivalent of a 34 1/2 year surrender charge.
 
There is a problem with an insurance company approving a sale of a product with a 20 year surrender charge to someone who doesn't have 20 years.
 
My point is that the problem isn't the product.  It is how the product is sometimes sold, which is the same problem that all products have.
Yes, but they younger person who is stuck in a 401k may be stuck in the qualified plan until 59.5, but can change investments anytime they want to, but with an annuity with a 20 year surrender charge traps the person to that type of investment.  Big difference!!!
 
I'm not an EIA guy (my B/D won't allow me to sell them), but from what I understand, on certain EIAs you can change what index the crediting will be based on.  So, there is zero difference.  Well, except that unless you keep the money in the GIC, you can lose money in a 401k.  You can't lose money in an EIA. 
 
Like anon said, the product is not the problem.  Using the product incorrectly is the problem.
The product is the problem in this case, because there is a big difference in being able to buy anything you want in an IRA/401k and having only the choices the annuity gives you that you may be trapped in.
 
An IRA is one thing, but how many 401ks give the participant unlimited investment options?  Do YOU offer your clients unlimited options?  I don't.  I give them a couple of options that will fit their situation.  I explain the pro's and con's and let them choose.  For the record, someone putting money in a FIA is NOT putting their money in the market.  The index is used as a way to calculate credits to the policyholder.  An agent who says that you get 100% market participation in an EIA is misleading the client.  A bank investment advisor who does not understand how EIAs work and badmouths them as evil across the board is just as misleading. 
 
Again, FIAs are appropriate sometimes.  Sometimes not.  401k's and IRAs are appropriate sometimes.  Sometimes not.  There is nothing black or white in this business.  Stop treating it as such.  It makes you sound ignorant.

Gordon Ramsey's picture
Offline
Joined: 2009-07-09

The EIAs I offer don't have surrender periods past 10 years.
 
However, even if they DID, you need to know HOW they work so you know WHY they are structured the way they are.
 
I can tell that you don't have a clue.
 
BTW, deekay is FAR from ignorant on 401k & IRAs.  A 401k IS a product.  An IRA IS a product.  No matter what you put in it, they are PRODUCTS - or more specifically, they are BUCKETS of PRODUCTS with a particular structure.
 
What you don't understand is STRUCTURE behind STRATEGIES.  But that's far above the context of this thread.

anonymous's picture
Offline
Joined: 2005-09-29

The comparison that I made is not a fair comparison.  That is why I said that it's not apples to apples.  My point is simply that the fact that one can't get to their investment for a long time is not necessarily a bad thing.  It simply needs to be understood.  Surrender charges in fixed products are the tradeoff that people have to make for higher rates of returns.
 
Biofreeze is correct that full disclosure helps make the sale.

anonymous's picture
Offline
Joined: 2005-09-29

theironhorse wrote:How do you guys sell an EIA without ever talking "market" or "securities," since those opposing 151A without a securities license in place must not discuss this detail when explaining the product?

 
theironhorse, can your friend who owns a restaurant talk about securities?  How about your buddy, the attorney?  How about your friend, the engineer?  How about your friend, the garbage man?  How about your friend, the car insurance agent?  How about your friend, the life insurance agent? 
 
How about this?  Can your friend, the mutual fund salesman with just a series 6 talk about the individual securities inside of a mutual fund?
 
My point is that one does not need a securities license to talk about securities.  One needs a securities license to sell securities.
 
Using the logic that one can't sell EIAs without being securities' licensed would also stop one from selling traditional fixed annuities because they couldn't talk about the money being in the general account of the insurance company because some of this money is invested in securities.
 
 
 

anonymous's picture
Offline
Joined: 2005-09-29

iceco1d, FIA and EIA are the same thing.  He was talking about the difference between a traditional fixed annuity and a FIA/EIA.
 
FIA/EIA are fixed annuity.  The difference is simply that money is credited in a different manner.  There is absolutely nothing that makes them a security.   They could come up with one that pays 4% if carrots outsell celery this year and 3% if celery outsells corn this year.  If they did that, they still would not be a security and nobody would be arguing that they are a vegetable.
 
The major hallmark of a security is the possible loss of principal.  This does not exist in any type of fixed annuity, thus it can't be a security.

Gordon Ramsey's picture
Offline
Joined: 2009-07-09

iceco1d wrote:Gordon Ramsey wrote:The EIAs I offer don't have surrender periods past 10 years.
 
However, even if they DID, you need to know HOW they work so you know WHY they are structured the way they are.
 
I can tell that you don't have a clue.
 
BTW, deekay is FAR from ignorant on 401k & IRAs.  A 401k IS a product.  An IRA IS a product.  No matter what you put in it, they are PRODUCTS - or more specifically, they are BUCKETS of PRODUCTS with a particular structure.
 
What you don't understand is STRUCTURE behind STRATEGIES.  But that's far above the context of this thread.

 
Gordon,
 
I didn't intend on quoting your post, I intended on quoting anonymous's post.  I really enjoy both of your posts, as well as deekays, on a lot of different issues.
 
I can't find it anywhere close to reasonable that you would consider a 401K or an IRA as a "product," because it isn't.  It's just a tax type.   I know, you know this, but I don't see how you could even remotely argue semantics here.
 
Now, as far as the "well a 401K could have a 30 year surrender charge," my personal opinion is that type of "comparison" should be illegal.  It's not the same thing.  401Ks don't have unlimited investment options; but they do allow for rollover to IRAs, which do (basically).  You can take a loan from a 401K.  You can do a Roth Conversion on an IRA, and 5 years later access the conversion amount.  You can do a 72t on an IRA. 
 
None of that is available to avoid a surrender charge in ANY type of annuity, or mutual fund.  Comparing ANY surrender charge (be it an EIA, or a B-Share American Fund) to the tax penalties associated with early withdrawal should be illegal.  In addition, the EIA has the SAME tax penalties on earnings as anything else before 59.5.  And IF the EIA would have been within an IRA, that really blows the argument out of the water.
 
Now, whoever posted the "you have the FIA and the EIA.  FIA is higher guaranteed rate, EIA has lower guaranteed rate, but chance to do better" - that was great.  PLUS, there is nothing wrong with saying that EIAs give you upside market potential...as long as you make it CLEAR that it isn't a 100% participation, and that it is indeed capped.
 
Sorry for the rant.
 
Not a problem iceco1d.  I've always enjoyed your posts too, so let's take a closer look at how deekay (and I) look at this:
 
IRS penalties are there in 401k, IRA, etc.
 
Then there are (what I call) "house rules".  These "house rules" are product penalties - such as B-share CDSC or Annuity surrender charges.  They aren't the same as IRS penalties, but should be considered in the overall strategy.
 
You can do a 72q on a NQ Annuity to get money out sooner without a 10% IRS penalty.  You can annuitize for a lifetime payout as well.  At the end of the surrender period, you can move the money to a new annuity or take all the money out (depending on age and other factors that will go into this decision).
 
If an IRA is also an EIA, then you can still do a Roth conversion.  You still have the 5-year wait on IRS rules, but you'd still need to know about surrender charges depending on the time in the contract you do the conversion, but you can do it with the same contract.
 
One should look at ALL ASPECTS of taxation & surrender charges TOGETHER to make an informed decision.
 
When I'm talking about structure, I'm talking about the basics of cash flow from someone's paycheck or pocket into a "bucket" and then taking it out.
 
For example: 
Someone is in the 25% tax bracket. 
Contributes $10,000 to 401k. 
Gets $2,500 tax deduction for the same year as contribution (simplified for the math here).
Grows tax deferred.
Comes out at an UNKNOWN tax rate in the future.  (does anyone think taxes will actually go down?)  If you put money in while in the 25% bracket and you withdraw at the 50% future tax bracket... where was your tax deduction? 
Limited options for accessibility - double taxation on loans against 401k balances, early withdrawal penalties if taken in cash, can lose money depending on investment allocation selected.
Depending on the company, there can be a "match" depending on contributions.  But what will they match on a $10,000 annual contribution?  Even with "free money", how much of that money would also be eaten up in taxes at time of withdrawal?  Or would this money just help offset the taxes that would be paid?
 
OR...
 
Same person in the same tax bracket
Contributes $10,000 to NQ EIA
No tax deduction for current year - so pays more taxes out of another pocket.
Grows tax deferred.
Pays taxes only on growth (not on principal) and only upon withdrawal.
No company match because this is a "privately owned pension".
"Has guaranteed interest rate AND an opportunity to earn a higher rate depending on the growth of a particular index and your participation/caps in that growth.  The reason for this is because the insurance company is buying options on the index.  They make money whether the market goes UP OR DOWN.  But it takes TIME to realize the gains on the options they buy, so that's why these are set up with a longer time schedule than other annuities you may have seen.  The company is buying the options with their money to credit to your annuity... not with your money, but with theirs."
 
Same money, but different strategies.  Do you pay taxes now or later? 
 
Which makes more sense for people?  The answer is "Yes" depending on the goals, objectives and preferences of the client.  Help the client see ALL ASPECTS of the decisions they make with their money, explain the alternatives available and let them choose. 
 
Because the client is still in control of their money... do they put it in the 401k "product" or the EIA "product"?  It's still a buying decision made with the client's cash flow.
 
The problem with many RR's is that COMPLIANCE is determining what you can present as a choice to consumers - because they don't want a lawsuit for "improper advice".  They're afraid of their own risks, so they don't LET YOU talk about NOT putting money into 401ks, etc., because it would be considered by the general public as "bad advice".  (Just remember that you don't advise the "mass public" but clients on a one-on-one basis.) 
 
Also, if you SELL 401ks, you want the participation to be as high as possible so you can earn as high of a trail of that entire company's balance - regardless of whether each individual should/wants to participate in the plan.

anonymous's picture
Offline
Joined: 2005-09-29

Good post, Gordon.   I would add that Compliance is determining that EIA's can't be sold because of the combination of worrying about lawsuits while at the same time not being able to make money from the sale.
 
Utimately, I'm convinced that none of this has anything to do with protecting clients and everything to do with the almight dollar combined with a quest for power.
 
I should probably disclose that I can't sell EIAs and when I could, I didn't sell any.

Squash1's picture
Offline
Joined: 2008-11-19

iceco1d wrote:Here's the skinny on both sides...Insurance-only guys loathe 151a because it would force them to register with a b/d, and possibly pass the S6 or S7 if they haven't already.  They like EIAs because they are a relatively easy sell "market participation with no downside risk to principle."  Some of them like the commissions too.Investment guys want 151a because they don't like having to compete with EIAs.  Most of you know, I'm an indexing, fee-only, cost sensitive dude; and even I can acknowledge that attractiveness of EIAs, especially over the past decade or so, and the economy we will probably face for the next few years.  I can sell EIAs.  Many b/ds won't allow it, for 2 reasons.  #1 they get bad press.  #2 the firms want fee-based business.  They want trails & predictable revenue.  They want to haircut products.  I think 151a is ridiculous (and I've never sold an EIA).  Annuities aren't securities.  Period.  As for disclosure, which is the REAL issue with MANY products - sure.  And I think it needs to be simplified.  Agents need to be able to easily understand and describe the products they sell, and clients need to be able to understand the main points.  Give it to them plain, simple, and standardized.  You pay this in years 1, 2, 3, 4.  You can earn V% of up to X% of whatever the S&P 500 does.  You will never earn less than Y% in any year.  blah, blah, blah.One more regulation that won't solve any problems, but cause more headaches.For everyone that is so against them, let me ask you this...say you are an insurance agent selling the 15% commission 20 year surrender EIAs, and rule 151a passes.  Are you telling me that you won't go out and get yourself a Series 6 so that you can continue raping people?  Of course you would.  And believe me, there are b/ds out there that will be more than happy to let you do it.  Won't solve anything.
 
I disagree with the reasoning, because I can do both, sell EIAs and run a fee program. But I think that is the difference.. With being able to do everything I don't have to just use one product because that is all I have.

Squash1's picture
Offline
Joined: 2008-11-19

BioFreeze wrote:Does anybody understand that the more you disclose, the easier it is to make a sale? 
 
I agree. but this doesn't apply to everyone, because some people can't disclose everything because it goes against what they originally told the prospect

deekay's picture
Offline
Joined: 2007-05-15

iceco1d wrote:anonymous wrote:iceco1d, FIA and EIA are the same thing.  He was talking about the difference between a traditional fixed annuity and a FIA/EIA.
 
FIA/EIA are fixed annuity.  The difference is simply that money is credited in a different manner.  There is absolutely nothing that makes them a security.   They could come up with one that pays 4% if carrots outsell celery this year and 3% if celery outsells corn this year.  If they did that, they still would not be a security and nobody would be arguing that they are a vegetable.
 
The major hallmark of a security is the possible loss of principal.  This does not exist in any type of fixed annuity, thus it can't be a security.
 
That's a typo on my part.  FA vs FIA/EIA.  My bad, good catch.
 
Interested comparison with the Series 6 btw. 
 
Gordon - Thanks for the compliment.  FWIW, I agree with basically everything in your last post.  My original post was strictly regarding the comparison of a tax to a surrender charge. 
 
 
To the layperson, yes, comparing surrenders to tax code is not accurate.  One is having to do with what rules the IRS lays out.  The other is having to do with what the product manufacturer deems appropriate.  My concern is that most people in our industry see a 401k as a good thing without question, but generally look at annuities with disdain.  However, early withdrawals from either a 401k or annuity is going to hurt the client today and in the future.  When advisors unquestionably recommend everbody contribute to a QP, but badmouth a NQ annuity simply because the QP doesn't have a surrender charge, it's ignorance pure and simple.  We all know for a 30 year old, the penalties for early withdrawal will last for 30 years.  But put someone in an annuity with a 20-year surrender?  SCANDALOUS!  Either way, the client is locking money up for a long, long time.  And if we make blanket recommendations like "Contribute to you 401k", we're doing a lot of people a disservice.  I mean, what happens if the client has some outstanding credit card debt, no savings, and no disability coverage?  How wise is it to contribute to a 401k?  Fact is, there are tons of people out there in this very same position.  We must be careful of making black-or-white recommendations.

theironhorse's picture
Offline
Joined: 2007-03-03

anonymous wrote:theironhorse wrote:How do you guys sell an EIA without ever talking "market" or "securities," since those opposing 151A without a securities license in place must not discuss this detail when explaining the product?

 
theironhorse, can your friend who owns a restaurant talk about securities?  who cares, how is it relevant? How about your buddy, the attorney?  ditto How about your friend, the engineer?  ditto How about your friend, the garbage man?  ditto How about your friend, the car insurance agent?  ditto How about your friend, the life insurance agent? not legally if in relation to making an investment recommendation between a fixed or variable product. 
 
How about this?  Can your friend, the mutual fund salesman with just a series 6 talk about the individual securities inside of a mutual fund?  very good point, never thought of it before.
 
My point is that one does not need a securities license to talk about securities.  One needs a securities license to sell securities.  as i referenced in my earlier posts, i am talking real world here people.  you don't sell fixed products to people, hanging yourself out there as any financial advisor, without questions coming up which you CANNOT answer with only a life and health license.  the direct answer to my post was funny and reminds me of your explanation re: vul, sounds great in a role play or imaginary setting, but in real life is just garbage.
 
Using the logic that one can't sell EIAs without being securities' licensed would also stop one from selling traditional fixed annuities because they couldn't talk about the money being in the general account of the insurance company because some of this money is invested in securities.
 
 
 
 
i have no problem with eia's.  i have been looking at them more and more in the last 2 years as the product has evolved and become much more consumer friendly.  but i do have a problem with the whole cloak and dagger way a good number of people sold them in the past.

Gordon Ramsey's picture
Offline
Joined: 2009-07-09

theironhorse wrote:you don't sell fixed products to people, hanging yourself out there as any financial advisor, without questions coming up which you CANNOT answer with only a life and health license. 
 
I'm going to steal the thread, but it is directly related to the topic at hand.
 
Please name a question or topic that I CANNOT answer with only a life & health license?
 
Keep in mind that answering questions & giving information and recommending securities & executing transactions are completely different things.

Squash1's picture
Offline
Joined: 2008-11-19

"I want to rebalance my portfolio can you help?"
 
"what do you think about my current holdings?"

Gordon Ramsey's picture
Offline
Joined: 2009-07-09

Squash1 wrote:"I want to rebalance my portfolio can you help?"
 
"what do you think about my current holdings?"

 
I can give anyone any opinion I want.  I cannot DO anything about it without being registered with a firm.  I can look up information and give my own opinion based on the information I get.
 
I can have any conversation with anyone that I want.  The key is - WHO can help the client make the changes?  The key also is in the disclosure:  I cannot DO anything about this but give you my own opinion.  It is up to you to execute any changes you want with your own broker.
 
Also, I would not be making any NEW suggestions or recommendations of securities.  I wouldn't say to exchange your American Funds for Goldman Funds for example.
 
But I can talk to anyone about anything.  I can't EXECUTE new trades or recommend new securities holdings, but I can always have a discussion - that is based on my personal opinion.
 

Squash1's picture
Offline
Joined: 2008-11-19

I understand what you can and can't do..
 
But you will look goofy saying nothing "this is what I would do, if i qualified to do it" or "buy an eia, I can sell those"..
 
Not saying this is you(sounds like it isn't, and you are one of the better ones)but this is how most conversations go with insurance guys I have run into.
 
To me it is like having a really high IQ and trying to teach a college course.. Sure you probably could, but no one is going to hire you without the proper degrees or background.
 

anonymous's picture
Offline
Joined: 2005-09-29

theironhorse wrote:anonymous wrote:theironhorse wrote:How do you guys sell an EIA without ever talking "market" or "securities," since those opposing 151A without a securities license in place must not discuss this detail when explaining the product?

 
....  ditto How about your friend, the life insurance agent? not legally if in relation to making an investment recommendation between a fixed or variable product. 
 
 
 
 
i have no problem with eia's.  i have been looking at them more and more in the last 2 years as the product has evolved and become much more consumer friendly.  but i do have a problem with the whole cloak and dagger way a good number of people sold them in the past.

 
We're simply talking about whether EIAs should be registered products.  Based upon your response, if the insurance agent can't talk about about variable products when trying to sell a fixed product, that would pertain to all fixed products.
 
That really gets to my point that if an EIA should be a registered product, all fixed products should be registered, and that, of course, makes no sense at all.
 
The point was attempted to be made by someone that one needs to be registered to legally explain how an EIA works and that simply isn't an accurate statement.
 
I would even make the argument that the EIA crediting method is not based upon a security.  It is based upon a change in an index.  An index is not a security.  There are security products that are based upon an index, but the index itself is not a security.  It doesn't matter whether this argument is valid or not.  

anonymous's picture
Offline
Joined: 2005-09-29

Squash1 wrote:I understand what you can and can't do..
 
But you will look goofy saying nothing "this is what I would do, if i qualified to do it" or "buy an eia, I can sell those"..
 
Not saying this is you(sounds like it isn't, and you are one of the better ones)but this is how most conversations go with insurance guys I have run into.
 
To me it is like having a really high IQ and trying to teach a college course.. Sure you probably could, but no one is going to hire you without the proper degrees or background.
 

Squash, I am in agreement with what you are saying.  It sure is helpful for someone to have an advisor who can sell multiple things or advise on multiple things.  That still doesn't have any bearing on whether an EIA should be registered.

Squash1's picture
Offline
Joined: 2008-11-19

But it goes to the heart of the matter/problem...
 
If I can only sell EIAs and that is my income, why would I recommend something else? That is like a Acura sales guys saying "Yeah those American companies are making a comeback, you should go check out what Ford is doing"

anonymous's picture
Offline
Joined: 2005-09-29

Nobody can only sell EIAs.  Anyone who can sell EIAs can sell any fixed insurance product.   Therefore, we get back to my argument that EIAs are nothing more than a fixed product.
 
By the way, if you can only sell fixed products, it wouldn't stop you from being ethical.  You would only sell them to people who would benefit from fixed products.
 
It's no different than if now you can only sell fixed and variable products.  That is what you sell.  You don't recommend food purchases or car purchases or shoe purchases...
 
I certainly understand your point, but there is still no legitimate arguments to call an EIA a security.  All the exact same arguments can be made about traditional fixed annuities.

Gordon Ramsey's picture
Offline
Joined: 2009-07-09

Squash1 wrote:But it goes to the heart of the matter/problem...
 
If I can only sell EIAs and that is my income, why would I recommend something else? That is like a Acura sales guys saying "Yeah those American companies are making a comeback, you should go check out what Ford is doing"

Thank you for your previous compliment.
 
I take on a different stance on this business that most do not.  I want to be involved in every facet of someone's total financial picture.  That doesn't mean that I need to DO everything within it, but I want to be involved.
 
For me, if I can tell that someone's allocation has strength and security based on their income needs (6- months cash reserve & stable assets growing for retirement), then I WOULD recommend that they begin looking for some additional returns through securities or other investments - because they HAVE the financial foundation built.
 
I completely agree with you that not every agent acts or feels this way.  I have been securities licensed (7 & 66) and I prefer to specialize in life insurance & other insurance products.
 
I also believe in "karma" - that if I do right by my clients, I will be receiving referrals and additional business because I treat them right - with the right contexts for their entire financial picture, not just the things I get paid on.

RealWorld's picture
Offline
Joined: 2009-07-13

I really enjoyed this thread. I pray to god that they pass this bill.
 
Gordon - you seem to have a good business but I am surprised by your arguement. I appreciate when the SEC looks into people further becasue frankly there is a TON of scum in our industry. These scumbag people are the reason why when you tell people you sell annuities people look at you with distain.
 
These products are 100% securities. Anoymous. 100%. And I believe the people selling them should be licsensed to the fullest. It is only state farm, country companies, etc insurance salesmen who are advertising retirement help on TV? No, now everyone wants to participate in our industry of financial advice (or selling a product to make money) but yet you don't want to take the test to prove you know what you are talking about?
 
Why shouldn't people who deal with finance be more educated and have to prove some form of education?
I know it will cost you a few bucks but my god if you are ethical you should be all for the SEC looking over your unethical brethren.

Gordon Ramsey's picture
Offline
Joined: 2009-07-09

I don't sell "annuities".  I help people make educated financial decisions that feel right to them - including doing nothing.  If in the decision making process an annuity might make sense, then I'll suggest it.  I'm not simply an annuity salesman.  I sell life, DI, annuities, LTC and use those products to fit solutions to problems my clients have.

 
I'll tell you this:  Anonymous is securities licensed.  He can sell securities. 
 
What we're talking about is the ethics and boundaries of regulatory bodies on different products.
 
If a product has a guaranteed interest rate, BUT has the potential to earn a higher rate... is it a security?  How are the funds invested within the contract that the client has control over?
 
No, it is NOT a security because the very funds that are in the contract are only allocated to which "index" the client was credited (if even given a choice)... not stocks, bonds or any "sub-accounts" that the clients controls.
 
Licensing (apparently) doesn't prove that anyone knows what they're talking about (including you since you completely destroyed your knowledge of EIAs).

Squash1's picture
Offline
Joined: 2008-11-19

anonymous wrote:Nobody can only sell EIAs.  Anyone who can sell EIAs can sell any fixed insurance product.   Therefore, we get back to my argument that EIAs are nothing more than a fixed product.
 
By the way, if you can only sell fixed products, it wouldn't stop you from being ethical.  You would only sell them to people who would benefit from fixed products.
 
It's no different than if now you can only sell fixed and variable products.  That is what you sell.  You don't recommend food purchases or car purchases or shoe purchases...
 
I certainly understand your point, but there is still no legitimate arguments to call an EIA a security.  All the exact same arguments can be made about traditional fixed annuities.
 
i think the difference is what the public knows. People understand fixed annuities. Similar to CD without FDIC  and some surrender charges.
 
But EIAs have a link to a security market, and have crediting strategies which people don't understand.
 
So if a client doesn't want a fixed rate of return for x amount of years.  The insurance guy has to use to the EIA to come close to marketing securities. So the intent is to compete with products you can't sell.
 

Please or Register to post comments.

Industry Newsletters
Careers Category Sponsor Links

Sponsored Introduction Continue on to (or wait seconds) ×