EQUITY-INDEXED ANNUITY LITIGATIONAttorneys from McCallum, Methvin & Terrell have successfully represented hundreds of clients in cases involving the sale and marketing of equity-indexed annuities. In recent years, many senior citizens and others approaching retirement have invested their life savings in equity-indexed annuities. Often times these annuities were marketed and sold as superior investments with promises of earnings bonuses and no risk of loss. Unfortunately, many people who invested in equity-indexed annuities were not given a full explanation of how the products actually work and, as a result, the investor's money was locked into an extremely long-term investment that was unsuitable for their needs. Free and Confidential Consultation to evaluate your Potential Equity-Indexed Annuity Claim If you would like to discuss an equity-indexed annuity you purchased, you may contact us, and arrange a free consultation with a lawyer experienced in handling equity indexed annuity cases. Our Birmingham, Alabama attorneys practice in state trial and appellate courts and federal trial and appellate courts throughout the country. The firm's attorneys are licensed in Alabama, Mississippi, Georgia, Florida, Tennessee, Oklahoma, West Virginia, Kentucky and Texas and represent clients throughout the country in association with lawyers in other states. We will arrange for you to meet with a lawyer with the experience to evaluate your claim regarding annuity sales practices. In most cases, if we take a case, you pay no expenses or attorney fee unless we recover a settlement or verdict on your behalf. To learn more about equity-indexed annuities, click the following links:
What is an Equity-Indexed Annuity?EIAs are complex financial instruments that have characteristics of both fixed and variable annuities. Their return varies more than a fixed annuity, but not as much as a variable annuity. So EIAs give you more risk (but more potential return) than a fixed annuity but less risk (and less potential return) than a variable annuity. EIAs offer a minimum guaranteed interest rate combined with an interest rate linked to a market index. Because of the guaranteed interest rate, EIAs have less market risk than variable annuities. EIAs also have the potential to earn returns better than traditional fixed annuities when the stock market is rising. Source: FINRA (f/k/a the NASD) Investor Alert titled "Equity-Indexed Annuities- A Complex Choice." Who purchases EIAs?The average age of EIA purchasers is 64 years old. In general, purchasers are folks nearing retirement or who have already retired and are attempting to manage their retirement funds. Although the average issue age is 64, it is not uncommon to learn of investors over age 80 who were advised to purchase an EIA. It is also not uncommon to find that a senior citizen has been advised to "roll over" or exchange one EIA for another. Some investors purchase EIAs as a component to a diversified portfolio of investments and financial products, and others have put substantially all of their life savings in one or more EIAs. The average initial premium is approximately $50,000, but EIAs purchased with initial premiums of $150,000 to $250,000 are not uncommon, and many individuals have invested far more than these amounts. Who sells EIAs?Many agents who became top producers for EIA sales did so through aggressive marketing tactics aimed at senior citizens. The aggressive marketing tactics, in many instances, is fueled by the extremely high commissions agents earn for the sale of some EIAs. A popular approach used by some agents has been dubbed 'seminar selling'. Agents who use seminar selling attract prospective clients to an 'informational session' or 'estate planning seminar' by offering a free lunch or dinner in exchange for the participant listening to the presentation. Seniors are solicited either through direct mail or print media advertising. At the seminars, the agents heavily tout themselves as experts with the primary goal being to gain the clients' trust. Specific investment products may not even be discussed, the agent instead hoping to portray himself or herself as someone highly specialized in the specific financial issues affecting senior citizens and who will provide unbiased advice. With that belief as a foundation, the agent then welcomes the opportunity to provide a one-on-one evaluation of the client's financial situation to see what, if any, changes should be made to meet the client's specific financial goals. This one-on-one session is typically held within a week of the seminar and, while the agent does review the client's financial situation, the purpose is not to provide unbiased investment advice and financial planning. Instead, it is to size-up the client's assets to see what can be used to purchase an EIA. Other sales approaches include telephone solicitations. In lieu of a seminar, the agent employs a call center to 'cold call' prospective clients. These calls often include some teaser information about the EIA that will ultimately be pitched (such as "How would you like to earn a 10% bonus on your retirement funds?"). The goal of the call is to set up a meeting with the agent in the client's home as soon as possible. Once in the door, the agent sells himself first as a financial expert, and then moves to the EIA pitch. In addition to broad scale marketing approaches, some agents look no further than their existing clients. A number of senior citizens have been 'churned' by the same agent who sold them a different annuity only a few years earlier. In these cases, the agent contacts the client to inform them that a new product has come on the market that is 'better' than the product he sold to the client years earlier. The older product's performance will likely be criticized, as will the company who issued it. Some exciting new feature of the proposed EIA will be highlighted to outshine the older product's deficiencies. The consequences for the investor can be devastating. With little or no improvement to earnings, the customer in an ill-timed exchange may incur harsh surrender charges and lose access to his/her money for many years. What's wrong with EIAs?The decision to invest one's life savings should be an informed decision. The complexity of EIAs presents difficulties for anyone trying to make an informed investment decision. FINRA (formerly the NASD) has issued an Investor Alert titled "Equity-Indexed Annuities- A Complex Choice." In its alert, FINRA notes that "EIAs are anything but easy to understand." The importance of an agent's role in selling EIAs is heightened by the complexities of the products. First and foremost, agents who hold themselves out as an expert or as someone specially qualified to give investment advice and financial planning should actually be qualified to live up to their representations. Unfortunately, many may not be and some insurance companies who market and sell their EIAs through this sort of agents do an inadequate job of training and educating agents to understand the complexities of EIAs. Additionally, some companies have done a poor job monitoring their agents' sales practices and have failed to confirm that the agents are operating within the limits of their respective licensure and registration (e.g. agent who is giving investment advice but holds only an insurance license with no securities license or advisor registration). Beyond the issue of licensure and registration, many agents have used potentially misleading designations in an effort to appear more qualified. Examples of these designations are "Certified Senior Advisor" and "Certified Elder Planning Specialist", but many more are out there. The use of these designations and agents using seminar selling as a sales practices were the subject of a hearing held by The United States Senate Special Committee on Aging. Testimony from the hearing is available on-line at http://aging.senate.gov/hearing_detail.cfm?id=295809&. The problem of agents who use misleading designations and operate as purported 'experts' or 'advisors' is compounded by the extremely high commissions and perks some EIA companies pay them. The compensation is never disclosed to customers and this system creates a conflict of interest for the agent (who has led the customer to believe they are receiving unbiased recommendations from an independent advisor). Simply stated, many problems with EIAs arise because the products are not clearly explained to the customer even though they are being sold in an advisory setting by someone who is holding himself or herself out as an expert in the field of financial issues affecting senior citizens. Without a complete explanation, many customers are led to believe they have purchased a product that should work like a traditional annuity, but in fact, is far more complicated and carries more long-term obligations, penalties and charges that the customer will incur if he or she does anything other than annuitize the product and draw his or her money out in small amounts over many years. (This fact is particularly remarkable in light of one industry expert report that notes that historically, less than 5% of annuity purchasers have elected annuitization). There is another problem in addition to the long-term obligations and severe penalties and charges that may result if the customer can't afford to annuitize the EIA. As FINRA reports in its Investor Alert: One of the most confusing features of an EIA is the method used to calculate the gain in the index to which the annuity is linked. To make matters worse, there is not one, but several different indexing methods. Because of the variety and complexity of the methods used to credit interest, investors will find it difficult to compare one EIA to another. The complexity of crediting methods is compounded by the fact most EIA insurance companies decide unilaterally what amount of interest will be credited to a customer's EIA, and the factors and reasons for the company's decision will not be disclosed. Likewise, the internal costs and fees associated with the EIA are determined solely by the company and are not disclosed. Many purchasers of EIAs were induced to liquidate other holdings or exchange existing annuities for EIAs with the promise of receiving an earnings bonus. That bonus, many were led to believe, would be more than sufficient to off-set any surrender charges incurred in the exchange and/or would boost the EIAs performance well beyond anything else in the marketplace. In reality, the bonus of many EIAs may be of little extra value because it is largely inaccessible. The only way to receive the earnings characterized as a bonus is to annuitize the EIA after a lengthy deferral period. Over the course of time, it is also believed that the companies manipulate the crediting rates to re-coup the cost of the bonus. In the end, the consumer receives less in the form of annual interest earnings because the company is keeping the earnings to recover the cost of the bonus. In other words, the EIA purchaser ultimately receives no more than he or she would have had the company simply credited the earnings in a fair and straight-forward manner. Resource Links for More Information on EIAs:"Equity-Indexed Annuities- A Complex Choice." FINRA (f/k/a the NASD) Investor Alert The National Association of Insurance Commissioners' Buyer's Guide to Equity-Indexed Annuities Free Consultation for your Potential Equity-Indexed Annuity Claim If you would like discuss an equity indexed annuity you purchased, you may contact us, and arrange a free consultation with a lawyer experienced in handling equity indexed annuity cases. McCallum, Methvin & Terrell, P.C. Alabama Annuity Attorneys An annuity is a contract between an investor/insured and an insurance company in which the company promises to make periodic payments to the annuitant (usually the investor/insured who is also the contract owner), starting immediately or at some future time. If the payments are delayed to the future, you have a deferred annuity. If the payments start immediately, you have an immediate annuity. One buys the annuity either with a single payment or a series of payments called premiums. Annuities come in two types: fixed and variable. With a fixed annuity, the insurance company guarantees both the rate of return and the payout. As its name implies, a variable annuity's rate of return is not stable, but varies with the performance of the stock, bond, and money market investment options that you choose. There is no guarantee that you will earn any return on your investment and there is a risk that you will lose money. Unlike fixed contracts, variable annuities are securities registered with the Securities and Exchange Commission (SEC). |
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