Equity Index Annuity firms win exemption from SEC regulation and rule 151a

In a major surprise to the annuity and financial community, equity indexed annuities were specifically provided favorable regulatory treatment in today’s Financial Reform Bill.

That treatment, which was clearly headed for a change before the new law with the SEC prepared to reclassify equity indexed-annuities as securities starting in 2011. The SEC's plan was derailed this week, however, now that Congress has voted to maintain the current setup in which state insurance regulators oversee the products. That revised approach and language, which came in the form of a surprise amendment to the financial reform bill, was offered by Sen. Tom Harkin, D-Iowa., who argued that annuities are insurance products, not securities. Frank and Dodd complete Financial reform bill

As part of the Wall Street overhaul process, companies that offer equity-indexed annuities, alongside state insurance commissioners, had aggressively pushed for state regulation of the products instead of federal SEC regulation.

However, The SEC decided in a ruling known as “151a” to treat the products as securities investment products, arguing they are both securities and a form of insurance. The commission opposed congressional efforts to remove them from SEC regulation. Supporters of the exemption disagreed with the SEC’s ruling and pushed lawmakers to ensure the products are treated as insurance products, which are traditionally regulated at the state level.

The move came over strong objections by the House Financial Services Committee Chairman Barney Frank (D-Mass.), the SEC, consumer advocacy groups, state securities administrators and financial planners. The Certified Financial Planner Board of Standards, Inc., Consumer Federation of America, Financial Planning Coalition, among others argued the legislation weakens investor protection.

Companies that offer the products lobbied vigorously for the legislation since early last year. They had established a 151 coalition and backed legislation from both Meeks and Harkin before the broad financial bill came up for debate. The House bill had 87 bipartisan co-sponsors and passed easily.

As this is a major bill that addresses the sale, underwriting and suitability of a product that is offered to people all over the United States, Speaking of Justice will be having Ron Shurts, of Shurwest Financial Group in Scottsdale, Arizona on early next week to discuss the implications of the bill, the regulatory structure moving forward and the impact it will have on agents, brokers and annuity owners nationwide. Mr. Shurts is a 20 year industry expert in annuity sales, design, underwriting and marketing and is a frequent commentator on industry issues. He can also be seen on Annuity News Now.