What are the Governing Bodies that Regulate Annuities?

Pressured to Buy a High Commission Annuity? Research Your Options!
Pressured to Buy a High Commission Annuity? Research Your Options!. PeopleImages.com / Digital Vision / Getty Images

There are many types of annuities available in the United States, and also a variety of governing bodies that oversee these specific products.

State Insurance Departments regulate Fixed Annuities.

Fixed annuities are regulated at the state level, not the Federal level.  Each state has its own State Insurance Department or Department of Financial Regulation that handles agent licensing, product approval, consumer complaints, etc.

  In addition, each state has a guarantee fund that backs policies to a certain level that varies from state to state.  That informative website is www.nolhga.com.

Fixed annuity types like Single Premium Immediate Annuities (SPIAs), Deferred Income Annuities (DIAs/aka: Longevity Annuities), Fixed Index Annuities (for now!), and Multi Year Guarantee Annuities (aka: Fixed Rate Annuities) are regulated at the state level.

There is an ongoing argument whether Fixed Index Annuities (aka: Indexed Annuities) are a security or not.  Currently, they are not classified as a security, but I predict that will change in the very near future.

The National Association of Insurance Commissioners (NAIC) acts as a protective umbrella over the entire insurance industry.

The NAIC oversees the insurance regulators in all 50 states, the District of Columbia, and 5 U.S. territories as well.  The NAIC is really a support organization for the state insurance departments, and help to implement standards and best practices throughout the insurance industry….which includes annuities as well as other insurance types.

Securities & Exchange Commission (SEC) is the regulatory body for Variable Annuities which are the only annuities classified so far as a security.

When it comes to annuities, the only annuity type that classifies as a security is a Variable Annuity.  The SEC oversees carrier offerings, licensing, advisor discipline, etc.

for all things variable annuity.

As mentioned in a previous paragraph, I predict that Indexed Annuities will eventually be classified as a security and will transition from state oversight to federal oversight by the SEC.

Financial Industry Regulatory Authority (FINRA) provides some regulatory protection over Variable Annuities in tandem with the SEC.

FINRA works in conjunction with the SEC to provide investor protection by regulating the securities industry, which includes Variable Annuities.

FINRA is not a part of the government like the SEC, and is actually structured as a not-for-profit organization. It is actually authorized by Congress to protect the investor by making sure that the securities industry works in the best interest of the public.  Currently, over 600,000 brokers/advisors are under FINRAs supervision.

Never forget that you need to develop your own regulatory stance. Perform due diligence!

On the surface, it looks like annuities are highly regulated and that the scoundrels could not survive under all of these watchful eyes.

  Nothing could be further from the truth. Observing the way most annuities are promoted and sold, it looks like the wild, wild, west all over again.  The oxygen is being sucked out of the room by agent gunslingers who put their commissions before client needs and goals. 

Most unregulated sales pitches seem to be in the indexed annuity world because it is classified as a life insurance product, and only requires a life insurance license to sell them.  An interested salesperson can take a 4 day cram course, pass a test on day 5, and be an indexed annuity expert on day 6.  It’s a scary thought that retirement decisions are being made with recommendations coming from a week’s worth of experience. This does not describe all indexed annuity gunslingers, but too many fit that frightening mold.

The best protection you have in the ugly world of annuities is yourself.  I always encourage people being pitched a “too good to be true” sounding annuity product to write down (in their own words) exactly what the agent is promising, then sign and date the bottom of that page.  Finally, turn the page around, slide it to the agent and ask them to sign off on those promises he/she just made.  In a lot of cases that pen weighs about 10,000 pounds.

The bottom line is that you are the best regulatory body when it comes to your annuity purchase.

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