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Submit Comments to SEC Opposing Proposed Rule 151A | NAIFA GovAlert | Advocacy | NAIFA
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NAIFA GovAlert
(Formerly Action Alert )

See also: NAIFA's Position on SEC Proposed Rule 151A, a memo from Jeff Taggart

To: All NAIFA Members
Date: August 27, 2008
Subject: Submit Comments to SEC Opposing Proposed Rule 151A

Background: On June 25, 2008 the SEC issued a new proposed rule (SEC Release No. 33-8933, File No. S7-14-08) that would classify certain indexed annuities as securities. The proposal would accomplish this by creating a new Rule 151A that would change the treatment of indexed annuities under the insurance products exemption found in Section 3(a)(8) of the Securities Act of 1933.

If the proposed rule is adopted, the SEC and FINRA would have authority over indexed annuity sales, and someone who wishes to market/sell indexed annuities will need a series 6 or 7 securities license and be required to have IA sales supervised by a broker/dealer. An insurance producer license, by itself, would no longer be sufficient. 

(Currently, agents with a life license can sell indexed annuities whether or not they also have a securities license--but if the agent does have a securities license, he likely has to have the sale supervised by his broker/dealer, whereas an agent without a securities license can sell indexed annuities without running the sale through a b/d.)

There is also concern that the application of proposed Rule 151A would not be limited to indexed annuities, and that other annuity and insurance products that fit the criteria set forth in the rule could be brought within the scope of the rule.

NAIFA Position: NAIFA acknowledges the concerns that have been raised regarding the suitability of certain indexed annuity sales and the methods used to market indexed annuity products. NAIFA strongly believes that people who engage in unscrupulous or misleading sales practices should be aggressively prosecuted and subject to appropriate and meaningful sanctions. However, concerns regarding suitability, disclosure and marketing methods are not the relevant criteria to consider in determining whether a financial product is or is not a security.

NAIFA agrees with state insurance regulators that indexed annuities should be classified as insurance products, and that the state insurance regulatory structure is the appropriate means for addressing the concerns raised by the SEC. NAIFA is committed to working with the NAIC and state insurance departments towards the goal of having every state adopt and vigorously enforce the NAIC’s model regulations on annuity suitability and disclosure.

NAIFA also recommends that a state regulatory body be designated to develop standards for indexed annuity product design that would be implemented by state insurance regulators and used to prevent inappropriate indexed annuity products from reaching the marketplace.

What You Can Do: Please contact the SEC today and request that it withdraw proposed Rule 151A. You can do this by:

Sample Comments: It always has a greater impact if you use your own words when submitting comments. The following sample language can be used as the basis for your comment letter or as the text of your e-mail:

I am a licensed insurance professional. I am writing to you because I do not support the adoption of proposed Rule 151A, which would classify most indexed annuities as securities. In addition, I am concerned that the application of proposed Rule 151A would not be limited to indexed annuities and that other annuity and insurance products that happen to fit the criteria set out in the rule would be brought within the scope of the rule. I urge you to withdraw the proposal.

At the outset, let me clearly state that I firmly believe that people who promote unsuitable sales and engage in misleading sales practices should be aggressively prosecuted and subject to meaningful sanctions. However, concerns about suitability, disclosure and marketing methods, however valid, are not the relevant criteria for determining whether a financial product is or is not a security. Properly structured indexed annuities do not share the same investment risk as investment products such as mutual funds and individual stocks, since with an indexed annuity the risk of a downturn in the related index rests with the issuer of the product and not the consumer.

In my opinion indexed annuities should continue to be treated as insurance products, and the state insurance regulatory structure is the appropriate means for addressing the concerns raised by the SEC. The professional organization I belong to, the National Association of Insurance and Financial Advisors, is committed to working with the NAIC and state insurance commissioners towards the goal of having every state adopt and vigorously enforce the NAIC’s model regulations on annuity suitability and disclosure. I also support NAIFA’s recommendation that a state regulatory body be designated to develop standards for indexed annuity product design so that inappropriate indexed annuity products would be prevented from reaching the marketplace.

For these reasons, I urge the SEC to withdraw the proposed rule. Thank you for your consideration of my views on this matter.

Technical Assistance? If you have technical questions about using NAIFA’s Legislative Action Center, please contact Vicky Dobbin at 703-770-8113, or communications@naifa.org.

If you have questions about proposed Rule 151A, please contact Gary Sanders at 703-770-8192 or gsanders@naifa.org.

Thank you in advance for your help on this issue!

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