Indexed annuities are complex investments that are not intended for casual investors. While most investors are familiar with the basic concept of an annuity (a series of guaranteed payments over time, usually from an insurance company), indexed annuities are far more complicated. They can present significant risks for unwitting investors; and, recently, brokers have been pitching indexed annuities to their clients because they offer brokers the opportunity to earn significant returns.
Indexed annuities have come under scrutiny by federal regulators, and many investors have experienced substantial losses as a result of unfavorable terms buried in the fine print. On July 31, 2020, the U.S. Securities and Exchange Commission (SEC) issued an updated Investor Bulletin warning individual investors to be wary of these risky “investment opportunities.”
SEC: “You Can Lose Money Buying an Indexed Annuity”
Indexed annuities are not safe and reliable investments, as many brokers would have their clients believe. As the SEC succinctly states in its updated Investor Bulletin, “You can lose money buying an indexed annuity.” The risks for investors who purchase indexed annuities through their brokers include:
- Added charges and fees – Brokers charge fees in connection with indexed annuity investments, including fees as high as six to eight percent for conducting “1035 exchanges” from fixed to variable annuities. Many indexed annuity contracts impose surrender charges as well.
- Tax penalties – Tax-deferred indexed annuities are subject to the federal 10-percent tax penalty that applies to early withdrawals (before the age of 59 and a half). Oftentimes, brokers will not disclose this risk to their younger clients.
- Poorly-timed withdrawals – If you withdraw money from an indexed annuity too soon, you may not be entitled to all of the returns that have been earned. You can also lose money if you make withdrawals while the indexed annuity’s market value is down.
- Insurance company financial distress – If the insurance company backing your indexed annuity faces financial distress or goes into bankruptcy, then you might not receive the payments to which you are entitled under your contract.
- Unregulated indexed annuities – While some indexed annuities fall within the SEC’s scope of regulatory authority, others do not. Generally speaking, unregulated investment products present even greater risks than those that are subject to the SEC’s oversight.
Due to these concerns, among others, the SEC advises that prospective investors ask lots of questions before investing in indexed annuities. Brokers should be able to answer these questions clearly and concisely—and they now have an affirmative obligation to disclose risks and other material information under the SEC’s Regulation Best Interests (Reg BI).
Recovering Your Losses from Indexed Annuity Fraud
If you have lost money investing in an indexed annuity, you may be able to recover your losses by filing a claim in FINRA arbitration. Arbitration provides a forum for investors to recover fraudulent losses without going to court. At Zamansky LLC, we represent investors in FINRA arbitration nationwide; and, if you have a claim against your broker, our attorneys fight to recover your losses on your behalf.
Do you need to speak with a FINRA attorney about recovering your fraudulent investment losses? For a free, no-obligation consultation, call us at 212-742-1414 or contact us online now.