The American Life Insurance Company of New York and have pulled their Direct Annuity off the virtual shelf. Last November, the Securities and Exchange Commission approved the new VA contract 2-to-1 with a dissenting vote from Commissioner Isaac Hunt. The VA was the first to offer a completely paperless VA, accepting e-signatures and not issuing a printed prospectus, even upon demand.

The National Association of Securities Dealers today initiated an investigation scrutinizing the product, prompting the firms to remove it from the Web site. Both the NASD and SEC have already reviewed the product and recommended changes, said Mark Legan, president of

"The regulatory bodies approved it and we did have to go through a process of modification. We expected that as a normal part of business; they wanted some things cleared up," said Legan.

With those issues resolved, however, Legan’s firm began selling the "no-fee" annuity direct to investors through its Web site. Without many of the standard charges normally associated with VA’s including administrative fees, mortality and expense, surrender charges, loads and insurance riders, the Direct Annuity was marketed as "no-fee."

"On the first [Web] page, it says zero loads, which is true. When you talk about variable annuities, there is no cost associated with this variable annuity chassis. What we’re hearing back is, wait there are costs in the product, and the costs are the fund management fees. Duh! Every va has these costs," said Legan.

As with all VA products, investors pay fund management and 12(b)-1 fees. However, while carriers are required to disclose all other fees associated with contracts, they do not have to disclose the amounts of management fees. Nevertheless, this appears to be the point on which the NASD is challenging American Life. The NASD was unable to comment on the topic.

"I don’t think the nasd is concerned about it; I think it’s the industry," said Legan, leveling a finger at TIAA-CREF, the creator of the annuity and leading low-cost provider.

According to Legan, computer logs show people from TIAA-CREF and the SEC on the site at the same time last week, "on the site on the same pages within the same minute." Apparently, he said the SEC wants to revisit the product as well. The SEC was unavailable for comment in time for this article.

"They’re aware of the product, but nothing has ever been filed or protested with the SEC or anything like that," said TIAA-CREF spokesman Jim Tolve, denying any collusion with the SEC. As for TIAA-CREF staff activity on’s servers, he said that the firm’s staff keeps up-to-date on competition, adding, "It might have just been average research."

However, Legan claimed that TIAA-CREF is "exerting extraordinary pressures on the nasd to kill this form of the product." While he suspected that other carriers in the industry are also likely grumbling to regulators, he did not have as clear evidence of their involvement, he said.

Leegan said that the firm may release a similar but slightly adjusted product or the same product saddled with restrictions preventing them from marketing it as the "no-fee annuity."

"We may have the best thing in the world, but we won’t be able to tell anybody about it," concluded Legan.

American Life’s legal counsel was not available for comment prior to publication.

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