Though it appears that regulatory oversight of equity-indexed annuities will remain with states — and not shift to the Securities and Exchange Commission — some insurers are nonetheless rolling out indexed-annuities that qualify as securities.
ING Life Insurance and Annuity Co. last week released its ING Select Multi-Index 5 and Multi-Index 7 registered indexed annuities. They join the likes of The Phoenix Cos., which has a product called Phoenix Foundations. And a handful of other carriers — including Allianz Life Insurance Co. of North America and Sun Life Financial Inc. — are also considering launching registered equity indexed-annuities.
That's a surprise. In the past, registered annuities have failed to gin up much enthusiasm among broker-dealers. Indeed, most have preferred to sell more traditional annuity products. Those annuities are considered insurance products — not securities — and therefore are not registered with the SEC and do not come with prospectuses.
That treatment was headed for a change, however, as the commission aimed to reclassify equity indexed-annuities as securities starting in 2011. The SEC's plan was derailed this week, however, when Congress voted to maintain the current setup in which state insurance regulators oversee the products. That proposal, which came in the form of a surprise amendment to the financial reform bill, was offered by Sen. Tom Harkin, D-Iowa., who argued that annuities are insurance products, not securities.
Still, the specter of SEC regulation — which surfaced in 2008 — has led a number of carriers to re-think their views of registered indexed-annuities. For some, that's meant cutting back on the complexity of what are typically very sophisticated products.
“The simpler design will appeal to a different rep, those who are more investment-oriented and less familiar with indexed annuities,” said Bill Lowe, president and head of distribution for ING Financial Solutions. He added that there were several large distribution partners who were hesitant to sell non-registered products.
The carrier aimed to placate broker-dealers by attaching the product to four indexes — the Russell 2000, Standard and Poor's 500, Euro Stoxx 50 and the S&P 400 — and by selling the product with a trail commission of 1% and 1% upfront.
Some broker-dealers, including
Raymond James and Securities America, already screen non-registered indexed annuities for suitability. And many in the industry doubt whether registered products could garner a following among firms — especially if a registered indexed annuity and non-registered version are sold side-by-side.
For instance, some broker-dealers use indexed annuities with short surrender periods as a substitute for certificates of deposit. But because registered equity indexed-annuities are considered securities, advisers must provide prospective buyers with prospectuses for the products.
And that can be a problem. Plunking down a prospectus could well spook a customer who is only looking for an alternative to CDs said Scott Stolz, president of
Raymond James Insurance Group, the broker-dealer's insurance agency.
Indeed, registered indexed annuities have failed to gin up much enthusiasm among broker-dealers. That lack of enthusiasm for registered products could be hard to overcome.
“They just don't sell,” Sheryl J. Moore, president of Advantage Group Associates Inc. and AnnuitySpecs.com, of the recent activity in registered indexed annuities. A registered product won't overcome the objections of those who don't sell them.”
