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Annuity Losses


The Securities & Exchange Commission offers the following definition for annuities:

An annuity is a contract between you and an insurance company that is designed to meet retirement and other long-range goals, under which you make a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date.

Annuities typically offer tax-deferred growth of earnings and may include a death benefit that will pay your beneficiary a specified minimum amount, such as your total purchase payments. While tax is deferred on earnings growth, when withdrawals are taken from the annuity, gains are taxed at ordinary income rates, and not capital gains rates. If you withdraw your money early from an annuity, you may pay substantial surrender charges to the insurance company, as well as tax penalties.

There are generally three types of annuities — fixed, indexed, and variable. In a fixed annuity, the insurance company agrees to pay you no less than a specified rate of interest during the time that your account is growing. The insurance company also agrees that the periodic payments will be a specified amount per dollar in your account. These periodic payments may last for a definite period, such as 20 years, or an indefinite period, such as your lifetime or the lifetime of you and your spouse.” See the SEC site for more of their discussion.

While it can be said generally speaking that annuities can be good choices for retirement investments, it is critical to take a hard look at the particular annuity your broker or insurance agent is trying to sell to you. There are hidden traps like surrender charges and penalties for early withdrawal. Some annuities consider six to eight years to be early. High commissions and high surrender charges are the biggest problems.

September 2014– FINRA filed complaint against SWS Financial Services for improper supervision of sales of variable annuities. More information here.

December 2012-FINRA Announces Investigation of Variable Annuities Sold by Sun Life Financial
A number of independent broker/dealers sold variable annuities issued by Sun Life Financial, Inc. that suffered large losses because the annuity sub accounts were invested in hedge funds. Using a combination of put and call options, the hedge funds were designed to perform within a certain range, however that design apparently failed and losses of 75% or more were experienced during the 2008 market crash.

The two hedge funds in the Sun Life annuities are part of a group called SALI Multi-Series Fund LP:

  • Foresee Strategies Insurance Fund
  • Foresee Strategies 3(c)(1) Insurance Fund

FINRA is currently investigating Geneos Wealth Management Inc., Lincoln Financial Network, National Planning Corp., SagePoint Financial Inc., and FSC Securities Corp. in connection with the sale of these products.

FINRA Alerts

FINRA has issued several investor alerts dealing with annuities that may be helpful to you.

We have been assisting investors recover investment losses for over twenty years. If you have questions about your brokerage account, give us a call at 561-391-1900.

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