151A, apples, bananas, oranges, fire trucks, dogs, FIAs and Mary SchapiroArticle added by Steven Delaney on September 24, 2009
Ranked: #114 (557 pts)
If you were walking your small child in your neighborhood and a fire truck were to go by, would you say to your child, "Look at that doggy?" That equates to the imperialistic effects of the SEC and FINRA, in regard to their push of 151A --and it's just wrong. Back to my analogy, just as the child who was told that the fire truck is a dog will forever be confused and socially inept, seniors, boomers, and the average citizen would be confused between what is a fixed insurance product --a savings product -- and what is a security -- an investment.
FIAs are insurance products -- clearly ... what else could they be? They have minimum guarantees and account values where annual gains are locked-in to a real account value. FIAs provide their owners with a guaranteed income stream one cannot outlive. Just because some court says to the SEC, "You are the SEC, thus we will defer to you, as the authority, and thus if you want to call a fire truck a dog, fine, but you now must prove to the world that a fire truck is a dog... and that you're not going to forever screw up the world by doing so." But the SEC, being the SEC, does not make an FIA a security. And now the SEC has the impossible task of proving out various other issues, which it can't and won't, because telling the world a fire truck is a dog is going to confuse everybody -- and, besides, they won't buy it.
Let me begin by regurgitating some relevant information; we all need to bring forth when we visit with our state representatives and senators. House Bill 2733 addresses fixed indexed annuities and insurance products via the Classification Act of 2009. The following bullets are contained therein:
Let me add a few other issues. Supporters of the insurance industry point to the fact that securities utilize a separate account where the insured alone accepts the investment risk. An insurance company utilizes its general ledger, where the insurance company bears the risk... not the insured. The NAIC and the states mandate that the insurance company provide non-forfeiture guarantees -- minimum guarantees to protect the policyholders, hence: They are not securities.
- Clarifies that Fixed Indexed Annuities (FIAs) are not securities under the Securities Act of 1933 - recognizing that FIAs are guaranteed insurance products adequately regulated by state insurance commissioners.
- Repeals recently adopted SEC Rule 151A - a rule adopted in the final days of Christopher Cox's tenure at the SEC - that would re-classify FIAs as securities beginning in 2011 even though FIAs have been in the marketplace for more than 10 years and have grown rapidly in popularity because of their guarantee features.
- Resolves controversy unleashed by Rule 151A, which produced a record number of comments opposing the Rule and was vigorously opposed by the National Association of Insurance Commissioners, National Conference of State Legislators, National Association of Insurance and Financial Advisors, and National Association for Fixed Annuities.
- Protects an innovative product -- the FIA -- which offers the opportunity to earn interest based on performance of a market index such as the S&P 500 but also guarantees principal and any previously earned interest against losses when markets go down -- a product that has not lost a dime as a result of recent market turmoil.
- Ensures that millions of satisfied consumers -- especially seniors -- will continue to have real choices when it comes to selecting financial products and services that best meet their needs, rather than having their choices limited by artificial regulatory classifications.
- Avoids an excess layer of regulation being imposed on insurance products that would cost -- by some estimates -- hundreds of millions of dollars and potentially threaten thousands of jobs in the insurance and financial services industries.
- Recognizes state insurance commissioners are the experts in annuities regulation and devote enormous resources to sales conduct issues facing FIAs -- just as securities regulators address sales issues for mutual funds and variable products -- thereby reinforcing proper jurisdictional division between insurance and securities regulators.
- Allows the SEC to focus its limited resources on its core mission: promoting open markets and fighting investment fraud, rather than regulating guaranteed products.
- HR 2733 enjoys strong bi-partisan support -- sponsored originally by Representatives Greg Meeks, Tom Price, and over twenty other Members of Congress -- and support is growing.
So, when/if the court should decide to let the SEC/ FINRA -- who have acted recklessly, foolishly, and in my opinion, without regard for the consumers wellbeing -- act as the fox that watches the henhouse, the house and senate/ Congress will not let it stand. Think about it: The only reason a state representative or senator would also defer to the SEC/ FINRA, as the court did, and not sign on to a legislative solution, is that they could not possibly understand the issues. Why else would a state rep or senator simply decide to be a "nuchschlepper?" (Yiddish for just going along and letting others guide you) By now, I'm sure Congress is realizing that the implementation of 151A would allow the SEC/ FINRA to usurp the power of Congress, who implemented all of the existing securities laws in the first place.
Depending upon your perspective, the description of what the SEC/FINRA is trying to do falls along a spectrum of adjectives. From the most light-hearted, or lenient of views, the SEC/FINRA is "misguided." At the other end of the spectrum, the group is considered "criminal." Think about the destruction their selfishness has caused. Seniors, boomers and the average citizen have placed their life savings at risk and lost 40 percent or more (some less). And FINRA is to blame, because they gave the orders. If given the choice of an orange, and not just an apple or a banana, many would have chosen the orange, but FINRA wanted their reps to keep the orange a secret. Read on and this will make perfect sense...
The SEC/FINRA allowed companies and broker/dealers to dictate to their constituents what they may and may not sell, and many actually forbid their advisors from selling FIAs, which are insurance products -- not securities. And, to this day, they still do. So to keep it brief, their advisors, at the risk of losing their jobs, went along and followed the instructions of their employers, visited with clients and prospects and, when asked about their retirement savings and investments options, "offered the consumer a low interest bearing vehicle -- a traditional fixed annuity provided by the company in question, or some other low-risk, low-interest instrument; or the opportunity for `higher interest,' `more upside,' and `higher market returns;' the upside potential of a market sensitive investment with higher cost and fees where the company, FINRA, and/or the B/D profits and gets control of the client and the asset."
That's the big picture folks: They offer an apple or a banana but, essentially, hold the orange behind their back. "Do not offer the FIA, as we do not produce those products and we do not stand to profit from the sales of such products." Again, that was then, and is today, depending upon your perspective -- criminal. What the SEC and FINRA and certain B/Ds participated in is "omission of material facts," and "deceptive marketing practices," in my opinion. Mary Schapiro has a problem with all kinds of things when it comes to public and private information, and what is to be provided to the consumer and what is not. Maybe she has no knowledge of what you just read, I really don't know.
And now the courts are considering letting these same people -- FINRA and the SEC -- dictate market conduct, market practice, and decide what products certain people can offer (securities licensed representatives) and what products others (insurance agents) cannot offer. This is thievery of our industry! They are trying to steal an industry and/or destroy it. Mutual whole life companies should wake up and join the fight, because if any rate of interest above the minimum guarantee rate is realized or not -- meaning the difference between what you actually earn in your life insurance company product, (fixed, traditional, indexed, whole life, universal life, etc., and what is guaranteed is determined to be an investment risk -- the products are all securities by the new definition. This definition of a "security" can ultimately apply to health insurance, long term care, property and casualty insurance; it's Pandora's Box. The whole industry has been turned upside down, inside out and --voila! -- they're all securities now!
We must let our senators and state representatives know what is going on here! You must assume they just don't know about any of this. You have to let them know that FINRA/SEC -- for all intensive purposes -- forced seniors and boomers to buy securities. They instructed their sales force not to offer the safer/guaranteed insurance product, the orange, "just offer `lower rates vs. more upside potential.'" And guess what the folks were pushed towards, or when given the choices, what did these folks naturally lean towards? Seniors and boomers reached for the upside potential because they were not offered anything else; because they were not offered moderation. Because they were not offered the FIA --again, omission of material information, deceptive marketing practices -- the seniors, the boomers, or the average consumer chose option No. 2, more upside potential, and lost a significant portion of their life savings -- some 50 percent or more -- and that is a shame. If given the choice of the orange, these people would not have lost one penny.
Do not stand still! There is a better way, an open-minded plan where registered reps and insurance agents and consumers have freedom of choice. Where the term consumer protection model means something good, as opposed to a compliance office's version of such -- going after a registered rep for selling away, where protecting the clients asset's and quality of life in retirement was less important to the B/D than their rules of selling away. Their rules of compliance with outside business activity were more important to enforce, than it was to act in the best interest of the consumer and the registered rep. Consider that when an advisor sought to present and later sell a fixed-indexed annuity, he or she believed they were well within their rights to do so, because the broker/dealer and the rep agreed to be bound by securities regulations only, and the advisor figured FIAs, as insurance products, were not under the B/D's or FINRA regulation.
Here are the facts: FINRA is viewed as an organization that has attempted to hide the true reasons for wanting regulatory authority over FIAs. However, the insurance industry has seen it all along -- it's the money! The pendulum has swung, consumers are more financially aware, or will become so, and moderation -- the FIA -- will become a more popular choice as time goes on. It is time that John Q. Public and the courts know what FINRA really desires, and what they are willing to do in order to protect their own self interest. FINRA forced their constituents via implied penalties/sanctions/fines, to harvest profits for the security side of the business only. FINRA stepped over the line. Notice to Members 0550 placed registered reps and their B/Ds on notice that they could/will consider FIA securities, when they had no jurisdiction to do so. In fact, they still don't.
They acted like gangsters. Imperialism is too polite a term. They did it for the money; they wanted control. For the money, they redefined risk -- ridiculously. For the money, it's all a charade.
If all of this is so obvious to everyone reading this and all of this makes too much sense, get out there with some conviction and tell your state reps and your senators. It's time to stand up for your profession -- stand up for your clients, and stand up for your rights! It's time to make your voices heard!
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