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Complex Fixed Index Annuities

Marketed mostly to seniors, complex proprietary FIAs are investment products that offer full protection of the principal investment while promising minimum rates of interest over a fixed number of years.  Advisers and insurance agents pitch FIAs as bank certificates of deposit on steroids with the security of being tied to a stock-market index while guaranteeing against losses if the market falls. While some traditional FIA’s (with strong guarantees) have their returns linked to traditional indexes, new, complex proprietary versions link to exotic indices with promises of unsupported, hypothetical returns with little or no track record.

Issues with Fixed Index Annuities

Marketing materials for these new complex proprietary FIAs often show annual returns up to nine percent each year in personalized 10-20 page illustrations, but do not clearly explain that the performance is hypothetical using the benefit of hindsight and back testing. In reality, we have seen that after the 2-5 year strategy term, most pay zero percent. Often, complex proprietary FIAs restrict the potential for earning by setting caps on annual gains and/or excluding dividends from the calculation of payouts thereby limiting what consumers can earn even if the particular index performs extremely well.

How do we fix the problem?

The complexity of complex proprietary FIA contracts, the deceptive marketing techniques, and the fact these products are often based on exotic indexes make it imperative Arizona and other regulators act immediately. Regulators must protect seniors from the deceptive marketing practices employed by these new, complex proprietary FIAs. Iowa has enacted regulations prohibiting the sales of complex proprietary FIAs and the New Jersey Attorney General has fined individuals for marketing potentially inflated misleading and confusing performance calculations.

Legislation

Bill: SB 1534

REFERENCE TITLE: fixed-index annuities; disclosure; indexing

Introduced by Senators Brophy McGee: Boyer, Bradley, Gowan, Gray, Leach, Navarrete, Otondo, Quezada; Representatives Bolding, Cano, Chávez, Hernandez A, Jermaine, Meza, Terán, Thorpe

AN ACT AMENDING SECTION 20-1242.02, ARIZONA REVISED STATUTES; AMENDING TITLE 20, CHAPTER 6, ARTICLE 1.2, ARIZONA REVISED STATUTES, BY ADDING SECTION 20-1242.06; RELATING TO ANNUITY DISCLOSURE.

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