The Federal Government needs to respect States Rights
At a speech recently SEC Commissioner Luis A. Aguilar suggested the need for more federal government oversight for the annuity industry. Not the variable annuity industry that the SEC currently regulates but the annuity industry managed by each state Department of Insurance (DOL). His decision was based on the amount of “fraud” currently invading the annuity industry. Of course, once again the SEC has it all wrong, the fraud is not with the type of annuity managed by the DOI, it is within their own currently managed side of the annuity business, the variable annuity (securities).
To further explain how disconnected Washington DC (SEC) is with reality, Commissioner Aguilar couldn’t even use the correct name of our products, instead referring to them as “equity-indexed annuities” a term long ago abandoned in favor of their real name “fixed indexed annuities.” His claim was the confusion and the complicated nature of these products and that the SEC would be better at managing (or regulating) them than any single state DOI.
This is a perfect example of the “creeping” regulation that is invading our country, more and more regulation by one single force that knows what is good for us, far better than any state DOI could ever manage. Commissioner Aguilar did not provide any details, just a general wave of his wand to let us know that the SEC is coming.
Of course, there is one obstacle that is in his way, a big obstacle, and the SEC has no authority to regulate insurance companies. That roadblock was put in place and is known as the Harkin amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which bars federal regulation of indexed annuities (not the misnamed product according to Commissioner Aguilar that doesn’t exist equity-linked annuities). One year prior, the U.S. Court of Appeals for the District of Columbia vacated SEC Rule 151A, intended to regulate indexed annuities, on procedural, not substantive, grounds.
Commissioner Aguilar also spoke about the need for the SEC to focus on “complex securities,” which he defined to include “securities that often involve embedded derivatives and may include (once again misnamed) equity-indexed annuities.
During his speech, he talked about the low-interest environment in the investment world and suggested concern over the possibility of increased fraud. His term of “equity-linked annuities” could cause investors to chase returns that were not available and to cause investors to make poor choices about the reality of returns. This could create a situation where the investor could become easy prey for fraudulent schemes that are cloaked as investments in complex securities.”
What Commissioner Aguilar is forgetting is that protection currently exists and is managed on an active scale by each state Department of Insurance and has been doing so for over 100 years. What does Commissioner Aguilar think he and the SEC could bring to the table that is not already in place? What he will bring if he has his way is more and more creeping and unnecessary federal management of a system that is working correctly. It seems the SEC is salivating for control over a product that six sold by and managed by insurance companies.
The SEC needs to keep their grimy fingers off this industry and this excellent product. Perhaps if they had shown (since 1933) that they could provide effective and competent management, they would get the chance, but their track record is sorely lacking.
Thank goodness for Tom Harkin and men (and women) like him who will stand up to the bullies at the SEC.