I am an independent market research analyst who specializes in the indexed annuity and indexed life markets. I have tracked the companies, products, marketing, and sales of these products for over a decade. I used to provide similar services on fixed and variable products too. However, I STRONGLY believe in the value proposition of indexed products, and that belief is what I have based my business on. I do not endorse any company or financial product.

I wanted to draw your attention to the blatant inaccuracies in your angry post. First, these products are called ‘indexed annuities’ or ‘fixed indexed annuities,’ not ‘equity indexed annuities’ or ‘EIAs.’ We want to draw a clear distinction between these fixed insurance products, and equities products. Second, the longest surrender charge in the indexed annuity industry is 16 years, not 20 years as you allude. Third, indexed annuities are priced to return 1% -2% greater return that traditional fixed money instruments (fixed annuities, CDs, etc). Although many of these annuities have earned upwards of 30% in a single year, they are not priced to return such performance consistentely. Interest accumulation of 6% – 7% is currently realistic on these products. Fourth, the highest commission available on an indexed annuity today is 12%- not the 15% comp. you reference. In addition, the AVERAGE street level commission on these products as of 1Q2009 was a mere 6.73%. And remember- agents are paid a single time on annuities and expected to service it for life, unlike many of the securities products that you may sell. Fifth, agents selling indexed annuities have to not only pass an initial exam, but take regular continuing education including (but not limited to) indexed annuity education and annuity suitability education.

The regulation in this market is different than what you are accustomed to, that does not make it wrong.

I extend my services to you humbly, should you require ACCURATE information on these valuable insurance products.

Thank you.

Sheryl J. Moore
President and CEO
AnnuitySpecs.com
LifeSpecs.com
Advantage Group Associates, Inc.
(515) 262-2623

As for your new comment about bid/ask spreads, this criticsm can be true of generic corporate bonds, muni bonds, CD’s and many other unlisted securities. Have you ever tried to sell $1,000 or $5,000 worth of AAA insured muni bonds? You’ll be lucky to find a bid 5 points below the last sale!!

Perhaps the only point on which we agree is that investors (both retail and institutional) are attracted to headline yield. That’s how complex AAA mortgage backed securities with a 50 basis point extra yield ended up wreaking havoc in the financial system.

They are sold to compete with bonds and CDs to investors with a low risk tolerance i.e non-equity investors. That is why they were created – to make more profits by selling artificially high yields to greedy/stupid retail investors(actually, I would prefer the term depositors). These ‘mums and dads’ are looking for safe investments but get duped into buying these because of the high headline yield.

Most structured product innovation revolves around making the headline yield higher and the downside risks less obvious.

And another problem with reverse converts – if you sell before maturity you have to cross a HUGE bid-ask spread. This secondary market risk is definitely not adequately disclosed.

Sneak Peek 2008
Larry Light On U.S. Business And The Economy
12.19.07, 3:00 PM ET
The Big Trend

The U.S. will skirt a recession in 2008, having shown it has the stuff to hold off an economic downturn in 2007. Call it a momentum play. An economy with the strength to withstand high oil prices, a housing slump and a credit crunch must have something going for it. That something is strong demand from growing nations like China. American exports are surging. Employment has shown surprising growth. And while there is softness is areas like retailing, the trend of a resilient economy will continue.

The Unconventional Wisdom

That housing will continue its downward spiral, smashing mortgage-backed securities with it. Bunk. Certainly, housing starts have fallen precipitously. A lot of attention is on the subprime loans with low teaser rates that are about to reset upward, zapping borrowers with much larger interest costs. But none of this means that the apocalypse is at hand. Heavy pressure is on lenders, especially from Washington, to work out these loans. So the problem won’t be as bad as advertised.

The Misplaced Assumption

Mergers and acquisitions will slow down. On the surface, this seems to make sense, because borrowed money, which M&A types thrive on, is harder to come by. And it is true that private equity funds will enter a hiatus. But public company M&A will continue and strengthen. Many companies have a lot of cash on their books that can be used for acquisitions. Financial outfits are cheap to buy these days, thanks to all the scare talk in the air. Expect a surge in bank takeovers by stronger banks, for one.

Glad he doesn’t actually sell securities. Or is he?

Kacky: Lehman and Bear and Merrill bought the complex mortgage-backed securities for their own portfolios and it didn’t work out so well. Did it? So this is conclusive proof that your statistic (if true) is entirely irrelevant.

Next you write: “They are sold to compete with CDs and bonds – hence the marketing mentions the ‘interest rate’ or ‘coupon’ first. If the stock price goes down, you get to own the stock! Yippee!”

EVERY product is sold to compete with CD’s and bonds. Hence the Econ 101 concept that ALL securities are priced to compete with so-called riskless ones. If CD’s and bonds were yielding 10% today, other investments would be priced massively lower. That’s how capital markets are supposed to work.

As to your last comment, some people (myself included) often prefer to buy stocks when they are lower in price — (and to sell them when they are higher in price.) It’s called “buying low and selling high,” and it works for some people.

None of this addresses the issue of whether the securities are systematically expensive (they are); whether the regulators are enforcing the current laws (they aren’t); and whether long-biased investors will make money during a severe bear market (most don’t).

That and the fact that all the banks selling these made tonnes of money from them…and they WEREN’T selling them to compete with equity ie s a covered call strategy.

They are sold to compete with CDs and bonds – hence the marketing mentions the ‘interest rate’ or ‘coupon’ first. If the stock price goes down, you get to own the stock! Yippee!