The Basics

Introduction | Regulation | NTM 05-50 | IA Rates | Crediting Methods | History | Glossary

Notics to Members 05-50

In August of 2005, the NASD issued the “Notice to Members 05-50.” This notice suggested that broker/dealers (B/Ds) treat Indexed Annuities as if they were securities, despite their fixed insurance status. For agents not selling securities products, NTM 05-50 did not affect their sales practices. Alternatively, agents with securities licenses were forced to change their sales practices in regard to Indexed Annuities. All sales of Indexed Annuities were to go through their broker/dealer forthwith. This meant that an agent’s B/D needed to approve the fixed insurance product that he wanted to offer his client, despite the fact that the NASD had no regulatory authority over Indexed Annuities. Regardless, agents holding securities licenses must abide by the rules of the NASD. Therefore, B/Ds began the task of overseeing Indexed Annuity sales for their registered representatives in August of 2005.

So, hopefully you now understand what an Indexed Annuity (IA) is, who can sell it, and who regulates it. You should also understand quite clearly, what an Indexed Annuity is not. It is not an alternative to a Variable Annuity, as an IA is a safe money place. A VA is a risk money place. Indexed Annuities would be more appropriately viewed as an alternative to CDs, or other fixed-rate savings instruments.

One of the primary reasons that Indexed Annuities have received negative media attention is because of their perceived complexity. In an effort to differentiate the many products that are available for sale today, insurance carriers have invented new methods of calculating potential interest crediting. At times, these methods are overwhelming to both the agent and client. However, 85% of the strategies available on Indexed Annuity products are based on very simple math (point-to-point, monthly and daily averaging, and fixed strategies). It’s the other 15% of the strategies out there that get folks confused once in a while.