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Rule 151A: Changing the Debate

By Bill Kauffman

Our industry sold more than $25 billion in Fixed Indexed Annuities (FIAs) last year. The buyers included seniors and pre-retirees searching for a safe place to keep their money. After the recent collapse on Wall Street, you can bet those  people are happy they didn’t invest that money in securities. As the Dow continued to post daily triple-digit losses in recent weeks, the FIA owner’s principle remained intact, proving the product’s ability to preserve wealth in any market.

This is all bad timing, of course, for the SEC's proposed Rule 151A, which seeks to reclassify fixed indexed annuities as securities. More than ever before, FIAs are being hailed as a secure savings vehicle offering protection from volatility. Ironically, this praise coincides with 151A’s attempt to call them into question. With the SEC re-opening 151A for comments, now is the time for the agent community to take advantage of this momentum and encourage your clients to speak out against 151A. It’s time to change the debate.

Mobilize Your Clients

In the wake of the financial collapse, producers should be calling their clients to discuss their positions and address any concerns they might have. This is the perfect opportunity to introduce them to some of the issues swirling around 151A, discuss the merits of the fixed indexed annuity and encourage your clients to get involved in the debate. You should find some willing participants.

From a consumer’s perspective, it makes little sense to take one of the few savings vehicles currently providing some stability for people and re-regulate it so it’s more like the investments that are currently the source of fear and panic. It doesn’t make sense because FIAs are not investments; they are insurance against the very scenario you see playing out on Wall Street today. Like all good insurance, the fixed indexed annuity offers a safety net in the sense that you can’t lose what you put into it. Hopefully, the current crisis has helped solidify that in peoples’ minds.

You could also explain to your clients that, as an insurance product, fixed indexed annuities are already tightly regulated by state insurance commissions. Each year, insurance companies reject millions of dollars in annuity contracts because of questionable suitability. And many companies follow up with elderly clients after the sale to make sure they know what they are purchasing. Simply recasting FIAs as securities won’t offer any further protection for consumers. It fact, you could argue that attaching a 100-page prospectus to a product actually makes it easier for details to get buried in the fine print, leading to reduced transparency and confused clients.

Possible Actions to Take

Any discussion of proposed regulations should involve all parties affected: carriers, producers, associations, regulators, policymakers, and yes, consumers. So ask your clients to get involved by writing a letter or sending an e-mail to their Congressman or the SEC. Maybe take it a step further and send a sample letter to your client base asking them to sign it and send it to the SEC.

There are a lot of sad stories out there tied to the financial crisis. People have lost money it took a lifetime to save, they’ve lost jobs they loved and homes they raised their families in. The flip side of this, however, are the people who are grateful today they had their money in safe places. Maybe it’s a client you sold a fixed indexed annuity to a year ago, and they’re still able to retire on schedule because their savings wasn’t wiped out, or maybe they can still help with a grandchild’s education. There is power in these stories as well.

Ask these clients to pass their stories along to the regulators and policymakers. Because while Congress and the SEC may be able to shrug off negative comments from within the insurance industry, they can ill afford to ignore testimonials from the thousands of people who actually benefit from these products and don’t want to see them change. It could be the key to changing this debate.