Regulation Tightening on Sales of Annuities to Seniors
Many financial professionals operate with the utmost integrity
and honesty. They, more than anyone, have long lamented the unscrupulous
sales practices of some in the huge annuity industry. Often, especially
with elderly purchasers, annuities are sold to individuals who will not
benefit from the purchase, do not understand the product they are buying,
fail to consider the tax implications involved or the substantial penalty
charges for early withdrawal, and the list goes on and on.
Now, according to a recent article in The Wall Street Journal,
some states and even the federal government have noticed. The responses
vary in their helpfulness, and some may arguably be ill-advised (cramping
the ability of the honest to do good work, or penalizing the honest while
doing little to prevent harm), but they do show that the problem has gotten
the government's attention.
New Jersey has enacted the Senior Citizen Investment Protection
Act. It places a 10-year limit on how long companies may impose surrender
penalty charges. Utah and Washington also have similar limitations of surrender
charges.
In California, the insurance commissioner is promoting legislation
to require annuity sellers to impose and adhere to certain "suitability
guidelines" when selling their products to investors over the age of
65. The state has also passed a law increasing jail time and setting a mandatory
fee of $25,000 or three times the amount lost due to an annuity sale that
can be proven to have been pushed by a seller purely for the purpose of
generating a commission.
Missouri's Secretary of State has attempted to pass legislation
that would grant the state's securities investigators enforcement powers
over variable annuities. She failed in her first attempt to pass the legislation,
but she has vowed to try again next year.
As part of a settlement agreement with the Secretary of the
Commonwealth of Massachusetts, Bank of America agreed to offer those customers
who were 78 and older and purchased variable annuities in 2003 and 2004
from Bank of America Investment Services Inc, and Quick & Reilly the
opportunity to receive the current value of the annuity without paying surrender
charges. The offer is open for six months beginning August 2005 and has
been extended nationwide.
At the federal level, the National Association of Securities
Dealers (NASD) has proposed regulations requiring annuity disclosure documents
to be written in plain English. The regulations would also require a supervisor
to double-check annuity sales to ensure they are appropriate for the investor
before issuing a contract.
As regulatory pressure grows on the annuity industry, it is
likely the industry will take greater steps to regulate itself.
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