June 3, 2003

 

 

Ms. Lajean Keene

Letters to the Editor

The Kansas City Star

1729 Grand Blvd.

Kansas City, MO 64108-1458

 

Dear Ms. Keene:

 

We are writing in response to the recent article entitled "Surprised investors find their nest eggs are variable and vanishing" by Paul Wenske which appeared in The Kansas City Star on May 25, 2003. We are concerned that the article creates a misleading impression about the sale of variable annuities, a valuable financial product that is helping millions of Americans prepare for retirement.

 

The variable annuity industry takes the issue of ethical sales practices very seriously.  We agree that registered representatives have a responsibility to be knowledgeable about the contracts they are offering, and are recommending them based upon full disclosure and proper suitability determinations.  And, we certainly support state and federal regulators in their efforts to investigate and discipline those guilty of unethical sales practices.  However, we believe it is incorrect to imply, as the article does, that unsuitable sales are widespread throughout the industry.

 

The primary reason that many people have seen their investments decline in value over the last couple of years has been the bear market which has affected all equity investments, not just variable annuities.  While not commenting on the merits of any particular case, we note that it is not unusual for the number of complaints to increase during declining markets when people have lost money.  And, just because a complaint or lawsuit has been filed does not mean that any wrongdoing has actually occurred.

 

The vast majority of annuities have been sold to investors who believe they have benefited from this tax-deferred retirement savings vehicle.  According to a recent Gallup survey, 89% of annuity owners agree that annuities are safe and secure, and 91% agree that annuities are an effective way of saving for retirement.  This is a track record of which any industry would be proud.

 

Why are annuity owners satisfied customers?  Because only variable annuities offer a unique combination of benefits most retirement-focused Americans want and need: lifetime income payouts, family protection in the form of a minimum death benefit, guaranteed fees, and a wide range of investment options to choose from.

 

 

 

And, contrary to what the article states, a variable annuity owner does not have to die in order to obtain principal protection.  Many variable annuities offer “living benefits” that can protect investors against downside market risk.  For example, some contracts guarantee the systematic withdrawal of a certain percentage of premiums annually (e.g., seven percent) until the original investment has been completely recovered, regardless of market performance.  Others guarantee that the contract value will be at least equal to the initial investment after a specified period of time, such as 10 years.

 

No product or investment is perfect for everyone, and investors need to fully understand their alternatives so that they can make choices based on their individual needs and circumstances.  We share a common goal of educating the public about variable annuities and trust our response will assist you in this effort.

 

Sincerely,

 

 

 

 

Mark J. Mackey

President & CEO

 

cc:  Paul Wenske