Published On: June 17, 2015

Retail investors are being warned about the sale of indexed annuities. An indexed annuity is one that yields return on an investor’s contribution based on a specific equity-based index. They can be purchased from an insurance company, and similar to other types of annuities, the terms and conditions associated with payouts will depend on what is stated in the original annuity contract. Insurance companies commonly offer a provision of a guaranteed minimum return with indexed annuities, so even if the stock index does poorly, the annuitant will have some of his downside risk of loss limited. It is also common for an annuitant’s yields to allegedly be somewhat lower than expected due to the combination of caps on the maximum amount of interest earned and fee-related deductions. It is a somewhat controversial new investment strategy that promises returns tied to the stock market, and guarantees against losses if the market falls. Recently, a new warning was released, focusing on the fact that agents are being offered exotic trips and other perks for selling them.

Elizabeth Warren, the Democratic Senator from Massachusetts, issued letters to 15 of the country’s largest annuity issuers in April. Her concern was on the marketing materials associated with the indexed annuities, and aimed at the agents who sell them. Agents who sell more annuities were promised trips to California wine country, South Africa, or a tour of the Mediterranean on a private yacht. Also offered as incentives were cash rewards, cars and jewelry. Said Senator Warren: annuity sellers who are “more interested in earning perks than in acting in their client’s best interest can place Americans’ savings and retirement security at risk.”

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