Securities Agency Seeks More Power

by Mark Friedman  on Monday, Jan. 5, 2009 12:00 am  

Heath Abshure: Variable annuities are "unsuitable for certain types of investors."

The most common type of complaint the Arkansas Securities Department receives is one it has no authority to investigate: buyer's remorse among people who buy annuities.

One complaint came from a couple in their 70s who listened to an insurance agent and invested $120,000 of their liquid net worth of about $125,000 in three flexible premium deferred annuities, according to Phyllis Shelby, chief investigator at the Securities Department, who listed the account in a report to Arkansas Business.

The couple "understood that after a period of five years they could withdraw their money," Shelby said in her report. "However, when they began to contact the insurance company, they were told they could not withdraw their money for another 10 years."

After calling an attorney, the couple learned they couldn't withdraw more than 10 percent of the value of the annuities each year without being hit with a 10 percent penalty. And that penalty was in place for the life of the product.

Shelby said that insurance agents push annuities because they can receive fees and commissions, which in some cases can be around 8 percent.

"We believe the commission is the motivating factor" for selling the products, Shelby said.

The Securities Department must refer such complaints to the Arkansas Insurance Department, which regulates variable and equity-indexed annuities.

But Arkansas Securities Commissioner A. Heath Abshure hopes to change that. In the upcoming legislative session, he will lobby for legislation that would give the Securities Department the authority to regulate variable annuities and equity-indexed annuities.

Arkansas Insurance Department Commissioner Julie Benafield Bowman said in a statement to Arkansas Business last week that her agency is working with the Securities Department on the issue.

Still, Abshure could have an uphill battle. In most states, insurance departments regulate variable and equity-indexed annuities. And the Arkansas Securities Department tried to get the legislation passed in a previous session to no avail. 

While some insurance agents support the move, the Arkansas chapter of the National Association of Insurance & Financial Advisors opposes the change and plans on fighting it.

"We feel that the Arkansas Insurance Department has done a good job at regulating these," said Mark Lowery, executive director of the Arkansas chapter of the National Association of Insurance & Financial Advisors. "We feel like it should stay under the regulation of the Insurance Department."

Others are bracing for the potential loss of business.



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