Ruling on 151A: Well done, SEC!Article added by Steven Delaney on December 17, 2008
Steven Delaney

Steven Delaney

Chalfont, PA

Joined: November 15, 2007

Well done, SEC. You take the only industry that has kept America's savings safe and sound -- products in which our insured's did not lose one penny -- and decide you would like to ruin them? It won't work.

If a Martian were to land on Earth, witness the economic turmoil and lack of oversight, and assess the responsibility and/or blame for our demise, Chairman Christopher Cox and his department would probably be No. 1 on the most-wanted list.

The SEC and FINRA may also suggest the moon is made of cheese, but such a suggestion doesn't make it so. The Martian and NASA could readily disprove that in court.

The universe of common sense people are of the opinion that the SEC has clearly missteped, again. After all, the SEC did a great job regulating Bernard Madoff, former chair of NASDAQ -- not!

Guess what will come of all of this?

The approval ratings for the SEC will go down even further and FINRA will be seen as an accomplice; because when the lights go on, the actions, protocol and teachings of FINRA and the securities industry in general, will be out in the open and seen in plain sight. The regulator's illogical, non-suitable, marketing-driven training will be exposed and people will be angry -- consumer complaints against the securities industry will go through the roof! But, again, if the consumer is to be protected, I think this is what really needed to happen: The insurance industry will be seen as the "safe money place."

As a result, questions will be asked that cannot be answered without self-incrimination, and without further incriminating FINRA and the securities industry. Stories will be widespread of seniors who were advised to place their life savings into the stock market, or at least a sum that will be deemed (in hindsight) to be certainly inappropriate. Now these folks have 40 percent less than what they used to have; in fact, it's worse. Those who saw the underlying securities go down 40 percent, with the inclusion of 3 percent in frictional cost (Warren Buffet's term for costs incurred when invested in the stock market), will now require an increase in the market of more than 74 percent just to get their money back. Check the math... unfortunately, I'm right.

Have you read my previous article, "American Annuity Advocates responds to WSJ article on Hartford Financial"? Just wait until the wave of lawsuits directed at the variable annuity companies go into play: The SEC and FINRA pedaled this stuff and may be seen as cronies of Wall Street.

I am of the opinion that things needed to play out this way, that FINRA and the SEC would need to be dealt with in the courts, as the commissioner was as obstinate as the Pharaoh, and logic did not play into it, ultimately, it was protectionism of the constituents.

Now, as Commissioner Paredes said, the only Commissioner to vote against the SEC proposal 151A, this Rule will be shown to be beyond the scope of the SEC's authority and will not hold up under legal review, as the Rule, if not challenged, could sweep other insurance products under the same decision at any time in the future.

What comes next?
    1. Now the entire insurance industry is forced to go to Congress and ask for a review of the 1933 Securities Act and the exemption afforded by 3(a) 8.

    2. The insurance industry will go to the new chairman and ask that Cox's decision declaring fixed-indexed annuities a security be reconsidered and revoked.

    3. If neither of these attempts are fruitful, the insurance industry will spend hundreds of millions of dollars trying to save their industry in an effort to prevent very sound insurance companies and their agents from going under -- and avoid laying off tens of thousands of people who, in turn, will put tens of thousands of other people out of work. (See NAFA's report on the Insurance Industry's Economic analysis of impact on 151A.)
FINRA and the SEC have been opportunistic and have benefited from some of the comments stemming from some state agencies. This was the case with the Texas State Securities Board, which is credited with saying, "Annuity products are legitimate investments," * but goes on to say, "they are only suitable for a very small percentage of the investing public and generally not appropriate for most seniors." This statement was published in National Underwriter Life & Health, which states: "It gives no supportive detail." Wow, that statement seems off the mark.

People who trusted the stock market have lost their shirts, pants and some, unfortunately, have lost even more -- and may never recover. How does the Texas State Securities Board feel about that statement today? Unfortunately, they keep on believing, "buy and hold," "the market always comes back [...except when it doesn't]!" Those who spew this nonsense are not providing "investment advice"; such nonsense is "fool's speak" by close-minded, ignorant people.

Putting FINRA and aggressive broker/dealers in control of all assets but CDs is akin to the fox watching the hen house. You and I both know that good planning, diversification and moderation is the way to go. Many good advisors -- good people -- did their job and consumers knew the risks. But remember how people who lived through the Great Depression lived their life? They saved, they didn't trust the stock market -- some didn't even trust banks. They appreciated what they made and what they saved and they stayed conservative. They wanted safety.

We are all in this together and somebody has to say something. We all need to continue voicing our opinions, educating our Congressmen and senators, and putting the pressure on regulators. We'll all be OK; this was round one and there are at least four rounds in this blockbuster fight.

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