Annuities group takes issue with SEC’s proposal on EIAs

Re: the two articles in the July 14 issue, under the headline "State insurance regulators are angry about EIA proposal," the National Association for Fixed Annuities is aware of the uncertainty and speculation that exists as a result of the Securities and Exchange Commission's proposal that would regulate equity index annuities as securities rather than insurance products.

Re: the two articles in the July 14 issue, under the headline “State insurance regulators are angry about EIA proposal,” the National Association for Fixed Annuities is aware of the uncertainty and speculation that exists as a result of the Securities and Exchange Commission’s proposal that would regulate equity index annuities as securities rather than insurance products.

Once the comment period closes Sept. 10, the SEC commissioners vote on whether to adopt the proposed rule in its original form, to adopt a revised proposed rule or not to adopt the proposed rule.

If adopted, issuing insurance companies and sales agents would be required to comply with the registration requirements within the time frame specified by the rule. The proposed rule specifies a time frame of 12 months following adoption.

If adoption is unsatisfactory to any party, the adopted rule may be challenged via the judicial system.

NAFA has always agreed with the stated motivation of the proposed rule, which is to ensure consumer protection and enforce suitability standards for selling and buying fixed annuities. However, NAFA supports the many state regulators, insurance commissioners and insurance companies that have enacted and are enforcing suitability and disclosure standards, are monitoring product marketing and selling activities in their state, and continue to prosecute fraudulent, misleading or unsuitable practices or sales.

NAFA and its member companies, as well as state insurance regulators, are committed to removing individuals and parties who violate the laws and requirements set forth by the laws. NAFA thinks that it is important to the outcome to be fully engaged and committed to the process and to participate in all activities that will affect a positive outcome for all members of our industry and for consumers.

NAFA’s board will hire a public relations firm and legal firm with established Washington contacts and demonstrated performance in insurance regulatory/legislative matters, business and public affairs, and market regulation/compliance. The firms will assist NAFA to propose a complete withdrawal of the SEC’s proposal; develop NAFA’s formal response to the proposal; penetrate the policy debate with key decision makers and legislators; coordinate NAFA activities and communications with state regulators and industry organizations; launch a media campaign to promote the value of fixed annuities; establish continuing member communications via the web, teleconferences and blogs; and utilize member carriers and their resources on communication, lobbying and legal activities.

The value of the fixed annuity — now more than ever in these turbulent economic times — is self-evident. Fixed annuities offer the guarantee of minimum interest and the opportunity for additional interest, while also promising that owners can’t lose their principal or any prior interest.

Kim O’Brien
Executive Director
National Association for Fixed Annuities
Milwaukee

EIAs should be qualified as securities

It would be interesting to see what impact the Securities and Exchange Commission’s proposed change on equity index annuities, if made, would have on state premium tax revenue.

Such annuities should have been qualified as securities right from the start. If a mutual fund created a similar structure, it wouldn’t be approved.

These contracts are complex, with many moving parts (most often, the agent as well as home office staff members have difficulty explaining exactly how they work).

As an author of continuing- education courses, I have the opportunity to see the content in EIA courses, as well as the results from exams taken over a period of time for the purpose of refining course content and exam questions.

All one has to do is look at the content in an EIA course, which should hold about 25% to 40% of content dealing with securities issues such as calls and options, indexes and market variables. How then can EIAs not be qualified as securities?

In addition, if the regulators were current with insurance and equity-planning issues, on the basis of providing consumer protection, the product wouldn’t be on the market. This product has produced a large occurrence of class actions and regulatory fines than most products in history.

Regulators should place the consumer first and quit fighting over turf.

Joseph W. Maczuga
Executive director
Fee Advisors Network
Troy, Mich.

Every new technology needs a security solution

In light of the recent security breach at LPL Financial of Boston, we are reminded that every new technology we implement should walk hand in hand with a security solution to it.

Over the past decade or so, the financial services industry has rapidly adopted technologies that make us more efficient, help us lower traditional expenses and connect to clients and associates in new ways. But every instant message, e-mail blast, logon to the Internet or other information age convenience can come at a price.

As online criminals become even more creative — and their numbers are growing rapidly — advisers and broker-dealers must stop and think about what outside security threat they might be introducing with each new technology implementation.

You don’t have to be a security expert to understand many of the threats and vulnerabilities that affect your organization, but at the same time, as head of your company, you are responsible for stopping or fixing these threats. But before firewalls, e-mail encryption or other solutions can be discussed, professionals should first categorize specific security threats and pinpoint where the targets lie.

For example, financial corporations are building up massive threat control infrastructure, but in reality, attackers are attempting fewer high-volume hacks than in the past to penetrate networks.

Instead, they are adopting more-lucrative tactics across the web that prey on the end users’ individual computers. As well as being more efficient, specifically targeted malicious activity on an end-user computer or website is less likely to be detected.

That is in part why LPL hackers were able to cause so much damage over nearly a year. And it is a lesson that all financial professionals should learn from, as most likely, it is only the beginning of many other similar attacks on other companies.

In its 2008 “Internet Security Threat Report,” Symantec Corp. of Cupertino, Calif., reported that during the second half of 2007, 11,253 external vulnerabilities were documented, compared with 6,961 in the first half of the year. That is nearly double the number in a six-month span.

Start now. Use your information technology resources to implement security tools to allow your IT team to isolate and fight each individual issue as it arises.

As in LPL’s case, a common attack is targeting login and other sensitive data through the keystrokes used to type in client information.

To adapt to a changing landscape of attackers and targets, financial services providers must protect against external threats, while also addressing the No. 1 source of identity theft: the workplace.

You hate to think an employee could steal your clients’ identities, but facts are facts. And since your clients are your livelihood, it is your responsibility to adapt a multilayered security approach internally as well as externally.

Start by asking yourself, “What if?”

What if an employee’s car is robbed and the computer is in it? What if one of my employees has a criminal background?

By becoming security-minded, it will soon become second nature to integrate new security tools along with new technology.

Whether you find solutions internally or outsource them, you should perform due diligence on yourself and your providers. For now, many of these strategies are voluntary, but regulators are quickly shifting the burden to financial institutions.

For example, some states are already requiring advisers and broker-dealers to have a written plan for identity theft prevention and a notification policy for when a breach occurs.

Staying ahead of the curve in the financial industry means seeing what is around the corner. As we have experienced, your ability to keep your clients’ data safe could soon become one of your company’s key selling propositions.

Eric Clarke
President
Orion Advisor Services LLC
Omaha, Neb.

ADD YOUR VOICE to this mix. Readers: Keep letters brief. Include your name, title, company, address and a telephone number for verification purposes. Write, Attn: Jim Pavia, 711 Third Ave., Third Floor, New York, NY 10017-4036. All mail may be edited.