Sept. 10--Less than two years after a new Florida law imposed tougher regulations on the sale of annuities to older investors, state officials say consumer complaints and enforcement actions triggered by dubious marketing practices have fallen, an indication the law may be having its intended effect.
But while the Safeguard Our Seniors Act has apparently discouraged the use of shady sales techniques and other abuses, the life-insurance industry -- which is already pushing to change the law -- is still at odds with the financial regulators and the financial planners over what it should cover.
According to state regulators, during the first 12 months after the law took effect in January 2011, consumer complaints about false guarantees, excessive fees and other abusive practices fell sharply for a second straight year, having also dropped in 2010, when the measure was passed by the Legislature and signed into law.
"Annuity complaints are down, which also causes enforcement actions to go down," said Alexis Lambert, a spokeswoman for the state Department of Financial Services. "The Safeguard Our Seniors [regulations] ... have served as a strong deterrent and have helped curb the problems we saw in the annuity market."
Some problems persist. A Winter Springs insurance agent, for example, was convicted this summer in state court of annuity fraud. But most experts agree the law has helped clamp down on problems with annuities: insurance contracts that pay investors monthly incomes, either fixed or variable, for set periods or the life of the recipients.
"My impression is that this law is working," said Charlie Fitzgerald, a Maitland financial planner and president of the Financial Planning Association of Central Florida. "But in my opinion, it is apparent that the insurance lobby still hasn't embraced it."
Earlier this year, insurers pressed for new legislation based on a model developed by the National Association of Insurance Commissioners. The industry said the national model would extend the same protections accorded seniors in the Florida law to everyone, while also simplifying the steps insurers have to take to comply with varying laws across the country.
But according to Fitzgerald, the industry proposal in its earliest drafts threatened many of the protections in Safeguard Our Seniors. The amended bill eventually failed to pass the state Legislature.
Industry officials dispute any notion that they are trying to undermine Florida's new law by lobbying for the national model.
"We believe Safeguard Our Seniors has been effective in Florida, but this national model would make it better," said Sam Miller, vice president of the Florida Insurance Council. "We have been working with state regulators for the last several years because there was a real problem: abuses by maybe a handful of agents. Our bill would have adopted Safeguard and extended those protections to everyone."
Miller said the industry plans to lobby for the national-model bill again next spring when state lawmakers convene in Tallahassee for their annual legislative session. Financial planners are still wary of any plan to revise the new law.
"My view is that Florida's law is much stronger than the national model," Fitzgerald said. "It has more serious restrictions and penalties for anyone who tries to manipulate seniors into unsuitable annuities."
Certified financial planners and insurance agents have been butting heads over annuities in Florida and elsewhere because both groups sell annuities to at least some of their clients.
Planners argue that annuities are only one piece of a person's overall investment and financial plan, and they accuse some insurance agents of viewing them more as opportunities to generate hefty sales commissions. Insurers argue that they are just as concerned about the financial well-being of their customers as planners are, and they accuse some planners of exaggerating what they describe as isolated problems within the industry.
Florida is a key battleground in this conflict, given its huge populations of retirees on fixed incomes.
Sales in Florida of variable annuities -- the largest category -- totaled $11.2 billion last year, which was third-most in the U.S., trailing only California ($14 billion) and New York ($13.1 billion), according to Morningstar Research. And that Florida total was up 19 percent from 2010, as variable annuities -- whose returns are tied to stocks and bonds -- have recovered much of the ground they lost during the stock markets' 2008-09 meltdown.
Miller said the model legislation, already used in 23 states, would apply its protections to all Floridians, not just people age 65 or older; the final version of the bill that failed to pass the Legislature last spring contained all of the existing law's main protections, he maintains.
State regulators, however, note that the industry's original proposal would have jettisoned key provisions of Safeguard Our Seniors. Those provisions were restored only after regulators intervened, according to Lambert, the Department of Financial Services spokeswoman.
Among the measures rescued: a cap on the "surrender" fees an insurer can charge when an investor cashes in an annuity before the contract's expiration date. The cap is now set at no more than 10 percent of the annuity's principal -- compared with actual fees in the past that had ranged as high as 20 percent.
Paul Auslander, an Orlando financial planner, said he hopes the Legislature turns back any attempt to dilute Safeguard Our Seniors. Auslander, co-founder of American Financial Advisors Inc. and current president of the national Financial Planning Association -- the main advocacy group for certified financial planners -- was among those who advised former state Chief Financial Officer Alex Sink when she developed Safeguard Our Seniors.
"The intent of the law was obvious: As financial planners, we were seeing a lot of agents out there selling annuities with 20-year penalties to people who were 80 years old," Auslander said. "That means they couldn't touch their money until they were 100 years old without being penalized. It was just ridiculous."
Safeguard Our Seniors now prohibits the sale of annuities with penalty periods of more than 10 years to anyone age 65 or older.
As a practical matter, the current law, while offering investors more protection, also generates added paperwork that can also confuse some consumers, said Matt Chancey, another Orlando financial planner.
"There are always unintended consequences with new laws like this," Chancey said. "It has made it more complicated for clients to be able to understand these products. There are more forms, more regulations that can make things cumbersome and complicated."
Even with Safeguard Our Seniors, older investors must still be extra cautious and do their homework if they consider buying an annuity, said Cary Carbonaro, a Clermont financial planner with United Capital Financial Advisers.
"If you don't really understand what you're being sold, that's a red flag right off the top," she said. "If you don't feel the person doing the selling is helping you understand it and is just selling you on some bells and whistles, it's probably time to step back."
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