SEC Angers Advisors By Publishing Inaccurate Bulletin Regarding Indexed Annuities

Last week, the Securities and Exchange Commission (SEC) published an inaccurate investor bulletin about indexed annuities, which raised concerns from financial advisors and insurance professionals.

The SEC's Office of Investor Education and Advocacy issued the release focused on indexed annuities, but instead described a totally different type of annuity, a buffer or structured annuity, throughout the bulletin. In the document, the SEC described indexed annuities as products that can lose money if a market index goes down, saying product features like a buffer or shield" limit investors’ downside if a market index like the S&P 500 loses money. However, this doesn’t apply to indexed annuities. 

What makes the mistake particularly bad is that the SEC regulates structured annuities, which, unlike indexed annuities are securities products.

Sheryl Moore, president and CEO of an insurance consulting firm, said, "There's no excuse to be disseminating misleading and inaccurate information like this. You are the department of investor education, and you need an education on what you're talking about."

Judith Burns, SEC spokeswoman, did not comment on the mistake nor indicate whether the commission would be publishing a correction.

Structure annuities are currently growing in popularity amongst investors, with first-quarter sales were up 60 percent over the same period last year. According to Wink Inc., Insurers sold $11.2 billion of structured annuities in 2018. 

Both Indexed annuities and structured annuities have limits on their upside interest gains, but also restrict losses to the downside. Indexed annuities, however, can't lose money based on market performance, while structured annuities can. 

Scott Stolz, senior vice president of private client group investment products and wealth solutions at Raymond James & Associates Inc., said, “I'm worried if it doesn't get fixed, somewhere down the road people will misunderstand how the products work.” This would lead to a challenging situation for financial advisers, whose investors might be concerned they’re getting conflicting information from their adviser and the SEC.

David Kinder, a California insurance agent, called the SEC's notice "completely off," but thinks its mischaracterization may have been intentional, since some insurance companies market structured annuities similarly to indexed annuities. 

"They titled [the bulletin] according to what consumers might be pitched," said Kinder. "I could see both sides of it. I just wish there was more clarification in the alert."


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