The White Law Group is investigating the sales practices of brokerage firms and insurance companies that market and sell equity indexed annuities to retired or elderly investors.
Indexed Annuities are annuities that are typically tied to a particular stock market index such as the S&P 500 or the Dow Jones Industrial Average. An equity indexed annuity typically guarantees that your principal investment will not go down in value, and offers the potential for higher returns if the stock market index to which it is linked performs well.
The way the annuity is marketed is typically to assure investors that if the index to which the annuity is tied goes down, the annuity owner has a safety net – the equity indexed annuity’s value at the beginning of the year (plus, in some cases, a guaranteed minimum rate of return). There are, however, downsides to indexed annuities and these investments are not appropriate for all investors.
First, indexed annuities are complex, and the manner in which they work varies widely among the insurance carriers that issue them. An individual carrier may also offer differing products, and revise its products from time to time. Here are a few examples of the variety and complexity:
• Principal Guarantee: Many equity indexed annuities provide that you’ll receive at least 100% of your invested funds; others guarantee only 90%.
• Participation Rate: This is the percentage of the stock market index’s gain that is credited to the annuity. One equity indexed annuity might offer a return equal to 85% of the gain; another might offer 45%.
• Participation Rate Changes: Insurers often reserve the right to change the participation rate from year to year. If the insurer lowers the rate, this could reduce your return.
• Caps: Caps create limits on the gain regardless of the performance of the index. Even though an equity indexed annuity might provide a 100% participation rate, a cap would limit any gain to a certain figure (like 7% a year).
• Spread / Margin / Asset Fee: Some equity indexed annuities subtract this type of fee each year from equity indexed annuities’ gain.
• Returning Customers: Some carriers offer lower returns to returning customers than they do to new customers.
• Guaranteed Minimum Rate: Some equity indexed annuities offer a guaranteed minimum rate of return. A guaranteed minimum is sometimes adjustable in the future, and in some cases only applies to funds withdrawn in a certain manner. For example, an equity indexed annuity might guarantee a minimum 3% return over a certain number of years, but only if you withdraw funds in the form of lifetime monthly income.
• Method of Calculating Index Changes: Equity indexed annuities employ differing methods for calculating yearly changes in a stock market index. Differing methods (e.g., monthly averages and annual point-to-point calculations) can produce wide disparities in calculating equity indexed annuities returns.
The biggest problem with indexed annuities (and the reason that annuities are so closely monitored by regulators) is the costs associated with purchasing and owning annuities. In addition to their complexity, indexed annuities often include high surrender charges in the early years, which tend to lock in the investor for several years. These surrender charges can make indexed annuities unsuitable for elderly or retired investors because it significantly limit the investors’ ability to access their funds if an unforeseen expense (like a medical expense) arises.
We are currently investigating the indexed annuity sales practices of brokerage firms and insurance companies, including but not limited to the following firms: Midland National Life, Sigma Financial, Investors Insurance, Lincoln Benefit Life, Jefferson Pilot Life, ING USA Annuity and Life, Amerus Life, Great American Life, Fidelity and Guarantee Life, and Allianz Life.
If you have any information that may assist The White Law Group in its investigation into the sales practices of firms marketing and selling equity indexed annuities, please contact our Chicago, Illinois office at 312-238-9650.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida. With over 30 years of securities law experience, including experience working at FINRA (f/k/a the NASD) and the SEC, The White Law Group has the expertise to help investors defrauded in securities, investment and financial business transactions. The firm primarily handles these cases on a contingency fee. For more information on The White Law Group, please visit our website at https://www.whitesecuritieslaw.com.