Should You Buy a Fixed Index Annuity?
Regulators are taking a hard look at index annuity sales. Here's what you should know.
We’re pleased to share that our efforts recently helped a client obtain a refund of over $106,000 in annuity surrender fees, fees they incurred related to a fixed index annuity sold by their previous advisor. The client purchased a fixed index annuity, which was sold by an advisor that the North Carolina Department of Insurance found was unlicensed at the time of the annuity sale. (What the NC Department of Insurance Discovered at Capital Financial & Insurance and What Clients of Capital Financial Advisory Group Should Know)
If you think you may have been misled by a financial advisor, sold an annuity that wasn’t suitable for you or want a second opinion before purchasing an annuity product, give us a call.
FINRA & SEC Take Dead Aim at Annuity Sales Practices
Annuity sales are under increased scrutiny after several high-profile lawsuits and regulatory actions. According to Financial Advisor magazine, both the SEC and FINRA are increasing their focus on annuity exchanges, compensation conflicts, supervisory conduct and documentation related to fixed index annuity sales. The SEC prevailed in a 2023 case (SEC v. Cutter Financial Group) involving the sale of fixed index annuities. The jury found Cutter liable of negligent deception for failing to disclose the exact commissions amounts and the conflicts of interest tied to annuity replacements.
In July, Centaurus Financial agreed to pay $1.1 million to settle FINRA settle charges that it failed to reasonably supervise annuity recommendations and exchanges. FINRA found brokers made higher-cost recommendations that triggered surrender charges and increased clients costs. A disturbing trend among sellers of these products is recommending “annuity exchanges” which can trigger surrender fees – fees that are often obscured by a “premium bonus” that’s credited when an new annuity is purchased. So if an advisor is touting a 15% - 20% bonus on an annuity product proceed with caution! There's no such thing as free money.
One Thing We Agree with Dave Ramsey On: Annuities Are a Poor Investment
We’re generally skeptical of Dave Ramsey’s investment advice, but we’re on the same page when it comes to annuities – specifically, fixed index annuities. These complex insurance products are often touted as the solution to a worry-free retirement. In our experience, they rarely perform as advertised and lock purchasers into a contract that has limited liquidity and expensive surrender fees if they want to get out of their investment. Commissions on these products are some of the highest in the financial services industry - often paying the advisor 7-8%. Dave recently tried to help a caller who put nearly $700,000 of retirement funds into a fixed index annuity.
If you're in or near retirement and want a second opinion or looking for a financial planner that provides comprehensive tax planning we encourage you to give us a call!
