While ING says the move to register the product has more to do with marketing the product to wirehouse reps leery of unregistered products, the SEC has been trying to bring indexed annuities under its remit for some time now.
Indexed annuities have proved tricky for regulators to define, since they sit squarely in between fixed annuities and variable annuities in terms of design. Currently, anyone with an insurance license can sell an indexed annuity, just as that person could also sell a fixed annuity—but not a variable annuity, which is considered a securities sale by regulators.
The SEC’s proposed Rule 151A makes clear that it views indexed annuities, whose selection of index funds rise and fall with the markets, are closer to the variable-annuity model than a fixed annuity. Rule 151A was set to kick in Jan. 12, 2011, but a successful challenge by the American Equity Investment Life Insurance Co. led the U.S. Court of Appeals to send the proposal back to the SEC for a rewrite.
The SEC is due to release its reworded proposal any day now. If it becomes a rule, insurers will still have a couple of years before they have to register their indexed annuities, but if and when it does, advisers will need at least a Series 6 license and an insurance license to sell any indexed annuity. That requirement will apply to ING’s new product when it launches in a few weeks.
Bill Lowe, president and head of distribution of the firm, adds that in addition to wirehouse reps’ preference for registered products, with a choice of four indexes within the policy—the Russell 2000, the S&P 400, the S&P 500 and the Dow Jones Euro Stoxx 50—the firm considers the product more like a variable annuity.
The Select Multi-Index carries no fee, but it caps out at a certain percentage set annually by ING—Lowe’s example was 7%—no matter what an underlying index earns. It also sets a floor at zero, so a policyholder won’t lose money on the downside.