Forbes Magazine: The Truth About Equity-Indexed Annuities

Representing Investors Nationwide

Forbes magazine columnist Mel Lindauer has been writing a series of columns about annuity investments. His most recent column, appearing August 13, 2010, takes equity-indexed annuities to task.

Mr. Lindauer describes the products as very complex annuity contracts sold with promises of increased value when the corresponding index goes up but with no chance of loss when the index goes down. He says this is misleading because in fact, the investor can lose money when the corresponding index goes down.

He says “this and similar spiels were and are likely being heard by many thousands of investors who were spooked by the recent market declines. They gladly accepted invitations from insurance salespeople to those infamous free chicken dinners where they tell you that ‘you can leave your checkbook at home because nothings being sold.’ ”

Mr. Lindauer goes on to debunk the claim the products are not very complex and easy to understand when in fact, they are one of the most complex investment vehicles available, often not understood my the sales person let alone the investor.

Lastly, although the products are sold with promises of market-like performance on the upside, the reality is the upside is limited and the guarantee of no principal loss is faulty. The agents often leave out the bad news regarding these products like the high expenses and insurance costs associated with them as well as the surrender penalties associated with a early withdrawal. Obviously, this is not a product for someone needing liquidity like a retiree facing unforeseen medical expenses or the need for nursing services.

The regulators, including the SEC and FINRA seem to be on to the insurance industries act and have published and proposals for federal investor protection involving these products.

The bottom line is the products are probably not suitable for most retirees and should be avoided. The full text of the Fortune article is linked here.

If you have purchased an equity-indexed annuity and believe the product was not adequately explained or was misrepresented, please contact our office to discuss your option for rescinding the transaction. Thank you.