Archive for the ‘Investment Regulation’ Category

SEC’s EIA rule may resurface – Investment News

July 27, 2009

The US District Court of Appeals has ruled that the SEC cannot regulate Equity Index Annuities. The SEC may reconsider it’s approach and could justify the regulation of a product that is not a security at some point in the future, but for the foreseeable future, these products will continue to be regulated by the Department of Insurance in each state. Insurance is not federally regulated, it is handled at the state level. Either way, you should know about Equity Indexed Annuities in detail before considering purchasing one.

Annuities are a product sold by insurance companies that offer tax-deferral of any income and gains that are not withdrawn from the contract. Fixed annuities offer guaranteed principal and an interest rate that is either fixed or based on a market index. Variable annuities offer the ability to invest in sub-accounts, similar to mutual funds, that can be in equities, fixed income, cash equivalents, and alternatives such as real estate. Gains and income are not taxed until they are withdrawn from the contract. Both fixed and variable annuities are offered either as deferred or immediate contracts. An immediate annuity offers a regular income stream that is generally a fixed amount for life, a time period, or a combination of both. As an example, the payments are for ten years guaranteed and for life thereafter. In that case, the insurance company agrees to pay the purchaser an amount for ten years whether they are alive or not. If they are alive after ten years, the payments are guaranteed to continue until their death.

Equity Index Annuities(EIAs) are a type of fixed annuity. They are not a security and although they contain the word equity, you should not expect an EIA to offer performance that is similar to the stock market. In exchange for the guaranteed principal of the EIA, you give up a portion of the markets return. Many EIAs base their interest rate on a market index like the S&P 500. If the S&P 500 falls, your annuity value remains the same. If the S&P 500 gains, your interest rate will rise either as a percentage of the gain (for instance 50%) or up to a limit or cap (for instance 6.5%). It is important to understand that the index that the EIA uses to determine the interest rate only uses the principal return, dividends are not included. As a result, these contracts are not an alternative to equities but they can be a valid option for funds that might be in fixed income or bank accounts.

The problem with EIA’s is that they are very complex products. Most have high surrender charges and long surrender periods. The worst EIA’s do not allow withdrawals and must be converted to an income stream (annuitized) when you want your money back. Do not buy an EIA if your agent is unable to fully explain the product to your satisfaction. Do not work with any agent, or company, that advertises that you can get the return of the market without the risk! That will not happen!

This overview is minimal, you should go to the NAIC website and request one of their consumer guides. The National Association of Insurance Commissioners offers insurance guides for Auto, Home, Life, Long-term Care, and Annuities. Their guides are educational and not advertising. You can download some of the guides but the annuity guide must be mailed. To get yours, visit NAIC.
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SEC’s EIA rule may resurface – Investment News“>
The reporter for Investment News, Sara Hansard, asked my opinion of these products and was kind enough to include my comments and my picture in her article. To read the article, just click this paragraph or the link below.

SEC’s EIA rule may resurface – Investment News

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What, exactly, does fiduciary really mean? – Investment News

July 23, 2009

Had a great weekend but didn’t follow up on the fiduciary rule, which I had promised. The following article does a great job in covering this issue. It is a must read, and written by a very knowledgeable expert on the fiduciary rule.

What, exactly, does fiduciary really mean? – Investment News

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Who is your adviser? – Redlands Daily Facts

July 23, 2009

It’s always nice to read an article that is written by a knowledgeable peer in your industry. The following article is from the Redlands Daily Facts Business Section and is written by Bill Beeler, a Redlands resident and fee-only Investment Advisor with the SEC Registered Investment Advisor named Regal Wealth Group.

His article is educational and he clearly understands the concept of the fiduciary standard, which Registered Investment Advisors must accept and comply. His advice is solid and I hope you enjoy this excellent article.

Who is your adviser? – Redlands Daily Facts

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FPA, NAPFA, state regulators and other groups urge Congress to impose fiduciary standard on all advi…

July 17, 2009

The new administration and congress are considering sweeping investment regulatory changes that are stronger than we have seen in many years. Many of these changes are needed. The following article from Investment News summarizes the fiduciary versus suitability rules that govern investment advisors and brokers. I will add a post this weekend that breaks down both rules, but until then, enjoy this great article! Paul
FPA, NAPFA, state regulators and other groups urge Congress to impose fiduciary standard on all advi…

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