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March 19, 2012

Annuity Case Chills Insurance Agents

The article in today’s The Wall Street Journal , “Annuity Case Chills Insurance Agents” raises many questions.  My comments are based solely on the article.  An insurance agent was convicted of a felony-conviction “for selling a complex annuity to an 83 year-old` woman who prosecutors alleged had shown signs of dementia.”  The criminal case, brought under a state  law specifically protecting elderly people.”
“The case underlines authorities continuing discomfort with ‘indexed annuities.”
“Indexed annuities are attractive to agents because of the high commissions they receive from insurers, which can be 12% or more.”
“In the mid-2000s, private plaintiffs and state attorneys general sued numerous insurers for alleged unsuitable sales of products to elderly people who lost money because of the  withdrawal penalties.  To resolve the suits, insurers agreed to better screen buyers for financial suitability, among other changes.”   
Congress is currently is considering what standard should apply to individuals that provide financial saervices relating to to securities.  Currently registered investment advisors are held to a fiduciary standard.  That is, they must do what is best for their clients.  Others, brokers, are held to a lower standard, suitability standard.  There currently is disagreement whether indexed annuities are a security or an insurance product.  If they are insurance products, the provider of the annuity will generally be held to the standard of the applicable state.  For those who believe in regulations, why should there be more than one standard.  If indexed annuities are an insurance product, they are subject to 50 different standards.  Other questions apply to people who move to other states, or who live in one state and purchase the indexed annuity in another state from an agent in yet another state.  How will the consumer know what standard applies?  If they are securities, who will the consumer know what standard applies?
If a separate standard applies to the elderly, how should “elderly” be defined?  Are there others that should have a separate standard.  There seems to be unanimous agreemnt that these products are complex.  Should the level of education be a factor? 
This is only a few of the questions that this case raises.   If you are considering an indexed annuity, be sure to prepare yourself to make the decision.  A professional with the applicable experience, education and integrity is a good way to start.

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