Tuesday, September 23, 2008

SEC Rule 151A: What Happens Next?

Rule 151A is the new rule proposed on June 25 by the U.S. Securities and Exchange Commission which would declare indexed annuities to be securities that must be sold through broker/dealers.

The official comment period for proposed Rule 151A ended on September 10. Counting form letters, the SEC received over 2,000 comments from insurance agents, registered representatives, insurance carriers, industry associations, and other interested persons.

Some within the insurance industry have characterized 151A as a raw grab for power by the SEC. They believe that the SEC will move forward with the proposed rule’s implementation regardless of the merit of any of the comments it has received. It certainly was not promising that the SEC received a letter signed by 18 members of Congress – a letter that merely asked the SEC to extent the comment period – and the SEC did not grant the extension.

So, now the entire industry waits for the SEC to show its true colors. Will it consider the merits of some of the comments, make changes to the proposed rule, and open a new comment period? Will it quickly move implementation forward with the existing proposed rule, as many fear? Or, will it surprise everyone by withdrawing the proposed rule completely?

Two things seem clear. One is that if you look at the entire landscape of the U.S. financial markets, index annuities should not be a major issue on the regulatory radar. The stock market, the credit market, the mortgage market, and the housing market are all a mess. Major retail and investment banks are faltering and failing. The federal government even needed to bail out Freddie Mac, Fannie Mae, and AIG at an enormous cost to taxpayers. Compare that to the index annuity market, where no policyholder has lost money other than by voluntarily taking an action that triggered a relatively modest surrender charge.

The other clear item is that if your income relies upon sales of index annuities, now is the time to prepare for this rule, just in case it is enacted. Increase your sales efforts related to traditional fixed annuities or life insurance. Those products have a lot of merit, and in fact, sales of traditional fixed annuities have increased dramatically this year. Also, study to obtain your securities license. It is best to be prepared. You cannot afford to have this rule take you by surprise.

Click the “Add Comments” link below to share your thoughts.

1 comment:

Scott Hoff said...

Brokers looking to get licensed might consider a Broker Dealer with a background in life insurance.

Marketers of fixed annuities might consider establishing a relationship with a wholesale broker dealer.