Insurance agents are blasting a controversial Securities and Exchange Commission proposal to classify equity index annuities as securities.
Under pressure from both the insurance industry and some members of Congress, the SEC last month reopened a comment period on the proposal.
And many insurance agents who oppose SEC regulation of EIAs are taking advantage by pointing out how much better their EIA clients have done versus investors in the stock market.
"You have no idea how many folks have walked across our doorstep in the last month having lost half of their retirement, thanks to your [securities] brokers," Victoria Rosen, corporate secretary for Financial Compass Inc., a Palmdale, Calif., insurance agency, wrote in a comment letter to the SEC late last month.
She was one of many in the insurance industry who have sent comment letters to the SEC in the past few weeks.
"I haven't had one equity index [annuity] client ... call me during this entire market downturn," said George Preacher, an independent insurance agent in Coral Springs, Fla.
That is "because their money is not at risk," he said in an interview.
Mr. Preacher also urged the SEC not to regulate EIAs.
Most insurance agents argue that because there is no market risk in an EIA contract, the products are fixed annuities and shouldn't be regulated as securities.
Fran Tarkenton, a member of the Pro Football Hall of Fame and founder of Tarkenton Financial LLC, an insurance marketing organization in Atlanta, made that same point.
The products offer conservative clients an important choice, the former National Football League quarterback said in his comment letter.
"Never in our history of selling these products has this been more evident than in the recent plummeting of our stock markets," Mr. Tarkenton wrote.
To bolster their argument, some in the insurance industry now refer to EIAs as "fixed index annuities," or FIAs.
"While millions of Americans suffered financial losses as a result of a massive drop in the stock market, FIA holders have not lost a penny," Frank Santo, a Hernando Beach, Fla., insurance agent and registered representative with American General Securities Inc. of Houston, wrote in a comment letter.
If the SEC regulates EIAs, "it's going to make it so restrictive, the public ... will be affected in a negative way," he said in an interview.
Mr. Santo said that broker-dealers tend to restrict which EIAs their reps could sell. The "huge sales force" of non-securities-licensed agents won't be able to sell the products if securities regulators take over, he added.
It would cost him $4,000 to $5,000 to obtain a license to sell securities, Mr. Preacher said. "I don't want be forced to get a securities license," he said.
Many agents such as Mr. Preacher think that the insurance business is less risky than the securities industry. Securities regulation and oversight is unneeded and would be too restrictive, they say.
To be sure, not all agents oppose the SEC effort to regulate EIAs.
"You can't sell an EIA tied to securities market performance without talking about the securities market," Terry Garlock, president of Garlock Associates Inc. of Peachtree City, Ga., who is affiliated with Questar Capital Corp. of Golden Valley, Minn., wrote in a comment letter.
But he added that even though he supports the SEC's move, his EIA clients have done "exceedingly well in the recent market dive" even though "there was zero securities-level supervision or oversight" when he sold them the contracts.
A BETTER WATCHDOG
Insurance agents say that securities regulators need to do a better job of watching Wall Street.
"Where was the [SEC] oversight on credit swaps?" Mr. Preacher said.
The insurance industry and state regulators, by contrast, do "an ex-tremely competent job of safeguarding the buying public," said Mark Temmer, a Ballwin, Mo.-based insurance agent with Professional Benefits Group LLC, who wrote in opposition to the SEC proposal.
"Why would anyone want the SEC to be watching their money that is now safe" in EIAs? he wrote.
Insurance agents told the SEC that they have indeed seen abuses in the sale of some high-cost EIA products, but said that enforcement should be left to state insurance regulators.
The promotion of EIAs was a "bit out of control" when the products first came out, Mr. Santo said, as surrender fees ran as high as 25% over the first eight years on some products.
But surrender periods and surrender charges have fallen, and agents are better trained in how to explain the products, he said.
The original comment period on the SEC proposal closed Sept. 10. The new comment period closes Nov. 17.
The SEC may have needed more time to digest the 2,000 comments it received, especially in light of the financial crisis, the Milwaukee-based National Association for Fixed Annuities said in a statement posted on its website.
NAFA opposes the proposal, and it wanted a longer comment period.
"It's a very significant change they're proposing," said Danette Kennedy, chairwoman of NAFA's government relations committee, and president of Gorilla Insurance Marketing Inc. and Gorilla Compliance LLC, both of Waukee, Iowa.
The extension gives the SEC the "opportunity to learn and gather more factual information" about potential effects of the proposal, she said.
E-mail Dan Jamieson at [email protected].
