March 25, 2012
The Financial Industry Regulatory Authority (FINRA) has expressed concerns to investors about annuities for many years. In 2006, concerned about unjustified annuity exchanges, they posted an alert showing investors how to determine if they should exchange their variable annuity for another annuity and cautioned investors about the complexity of the products that contain hidden costs and risks.
In 2009, FINRA posted another alert advising investors to closely scrutinize variable annuities, especially senior investors. Seven factors were listed as warranting close attention before investing:
- Liquidity & Early Withdrawals-there may be penalties for 6-8 years if you need to liquidate.
- Sales & Surrender Charges-Surrender charges may start at 7 percent and decline one percent per
- Fees& Expenses-In addition to sales and surrender charges there may be a variety of other fees related to administration, mortality and other special features.
- Taxes-Annuities do not provide the tax benefits of 401(k) plans and other before tax retirement plans.
- Bonus Credits-While they may appear advantageous, these credits often come with another hidden cost.
- Guarantees-these benefits are only as good as the company you are buying from. Make certain it is a company with adequate financial strength.
- Variable Annuities in an IRA-Generally not a good idea, since the IRA is already tax advantaged.
In 2010, FINRA warned investors about complexity of indexed annuities, (EIAs), also knows as fixed-indexed insurance products. The internal workings of these investments is very complicated and is set out in the alert, so you may want to take a look at it if you are considering such a purchase. Forbes published an article in 2010 “AreEquity-Indexed Annuities Right for You?” which you may also find helpful.
As previously reported on this blog, in March 2012, a state court jury in Lake County, CA found Glenn Neasham guilty of felony-theft for selling complex annuities to an elderly woman. He was sentenced to 90 days in jail. According to a Wall Street Journal covering the story, “the case underlines authorities’ continuing discomfort with “indexed” annuities”.
Rex Securities Law , with offices in Boca Raton, FL, and Austin, TX, provides representation to investors nationwide who are seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney.
Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.
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