How Do I Know If an Annuity Is Appropriate for Me?

Did you know that your financial advisor can win free tickets to the super bowl by selling you an annuity? The law firm of Meyer Wilson has been helping investors who have claims against their financial advisors for fraud or other misconducts for the last 15 years. One of the situations we see time and time again is the fraudulent and inappropriate sales of annuities. Most sales pitches of annuities share the same common thread. Investors are promised “guaranteed” income for life and told that annuities should be a part of every investor’s portfolio. To investors that sounds great.

More than $235 billion dollars’ worth of annuities were sold to customers in the United States in a recent 12-month period. In reality, annuity contracts are often riddled with confusing terms and conditions, high annual fees, and hefty surrender charges. In most of the cases we have handled, the broker does not even understand the complexities of the product being sold and usually has not even read the actual annuity contract before offering to his or her clients.

A recent investigation conducted by a U.S. Senator’s office exposed why brokers and insurance agents pushed so hard to sell these confusing products to their customers. The essence of the investigation finding if this: because of loopholes in the law, advisors push the complex financial products that will earn the highest commissions, rewards, perks, and prizes for the advisors, even if they are bad options for their customers.

Companies that represent billions in annuity sales offer kickbacks to sales agents and marketing organizations in exchange for selling their company’s products. These incentives are separate and apart from the high commissions, they already earn selling their products and are based on the amount of business a particular agent produces.

The most frequently offered incentives involve all-expense paid trips to expensive vacation destinations, golf outings, dinners, tickets to sporting events, theater tickets, and gift cards. How do you think they pay for all of these perks? You guessed it. With all the profits from selling billions worth of annuities.

Another finding of the investigation is that disclosure and explanations of these kickbacks to customers perched in the annuities is woefully inadequate, if not completely absent. The limited disclosures that are provided to consumers are buried deep within the prospectuses in complex legalese rather than be provided in an easily available and understandable fashion. None of the disclosures clearly reveals that these perks may create incentives for an agent to put his or her own interests ahead of those of the customer’s.

Recently, the Department of Labor proposed a new rule that would eliminate the worst sales practices in the annuity industry. The rule would close the loopholes of existing laws by requiring that all advisors who give retirement advice specifically directed to an individual investor must act in the best interest of their clients. This means that a retirement investment advisor could not steer a customer to an inferior product simply because it boosts the advisor’s own income or comes with enticing giveaway. It would also clearly require that advisors disclose any conflicts of interests such as luxury vacations or super bowl tickets instead of burying these disclosures in the fine print. This rule would be a huge step forward in protecting investors from the current environment of unscrupulous sales practices surrounding annuities.

If your investment advisor recommended an unsuitable annuity and you lost money as a result, contact Meyer Wilson for a free evaluation of your potential case.