Annuities lack uniform standards, NASD CEO says

May 15, 2006 @ 12:01 am

By Sara Hansard

WASHINGTON - Investors don't understand that they get different types of protection when buying various types of annuities, NASD chairman and chief executive Robert Glauber said at a recent annuity round-table discussion.

Suitability standards, supervision and training of salespeople, disclosures, and advertising standards need to be uniform to protect investors, Mr. Glauber said at the May 5 Annuity Roundtable here sponsored by NASD and the Minnesota Department of Commerce.

The round table included insurance industry officials and representatives of federal and state securities and insurance regulatory agencies.

"Does an investor understand that he or she gets one set of protections when buying a fixed annuity, a different set of protections when buying a variable annuity and an unclear set of protections when buying an indexed annuity?" Mr. Glauber asked. "The obvious answer is 'no,'" he said, though all three types of annuities usually are bought for the same reason and seem to be the same type of product as far as most investors are concerned.

"It is up to us - regulators, industry, consumer advocates - to make sure that investors are equally protected no matter what type of annuity they purchase," Mr. Glauber said.

State insurance regulators have called for the enactment by all states of a uniform suitability standard for people who purchase annuities, a standard that the life insurance industry supports. Further, under suitability standards for the insurance industry, insurance underwriting companies are held accountable for unsuitable sales, said North Dakota Insurance Commissioner Jim Poolman, whose office is in Bismarck.

"You have the deep pockets of the company," said Mr. Poolman, who also is chairman of the life insurance and annuities committee of the National Association of Insurance Commissioners in Kansas City, Mo. "The ability to go after a company, to hold them accountable for a product that is sold under their auspices … is incredibly important."

Unlike state securities regulators, insurance commissioners control licensing for insurance carriers, which gives the insurance companies a powerful incentive for ensuring that their products are sold fairly, Mr. Poolman said. North Dakota has been able to satisfy aggrieved annuity customers in cases where state regulators determined they were sold unsuitable products, he said.

But Joseph Borg, director of the Alabama Securities Commission in Birmingham, cited agent training and supervision as a more pressing concern than the quality of the annuity products. "Our experience has been that many of the salesmen selling the products have really no clue what they're selling," he said.

Many websites operated by sales firms give information about how much money can be made from annuities by using 30-year deferral periods, Mr. Borg said. That isn't realistic, he said, because those who are nearing retirement will need to take withdrawals long before 30 years.

Retirees are living longer, and they need to have guaranteed lifetime income, said Frank Keating, president and chief executive of the American Council of Life Insurers in Washington.

People today will retire at an average age of 62 and live until they are 80, he said. "The industry's going to sell a lot of annuities," Mr. Keating said.

"We think that's healthy," he said. "It's an excellent long-term savings vehicle."

A simple uniform disclosure statement similar to what is being developed by Washington-based NASD and the Securities and Exchange Commission for mutual fund point-of-sale disclosures should be developed by working groups that include regulatory and industry officials, Mr. Glauber suggested.

In addition, he said, NASD's expertise in reviewing VA advertisements and sales brochures could be tapped to develop advertising standards for equity index and other fixed annuities.

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