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In search of an investment product that would bring greater returns for their clients, many financial advisors recommend that their customers purchase annuities. Yet, when investing in annuities, many investors are not aware of the risks associated with these products. An annuity is designed to help grow the assets of the investor, and then, upon annuitization, pay out a stream of income to the investor at a later date. Annuities are often recommended to retirees to provide steady cash flow during their retirement years. Types of annuities include Deferred Annuities, Variable Annuities, Immediate Payout Annuities, and Equity-Indexed Annuities.
Annuities are not suitable for all investors. In fact, the NASD issued Notice to Members 96-86, Notice to Members 99-35 and Notice to Members 05-50 to remind member firms of their responsibilities regarding the sales of Variable Annuities and Equity-Indexed Annuities, including their suitability obligations when selling annuities. Investors who place their money in annuities should be aware of all of the risks and costs associated with these products. Specifically, certain annuities carry the following risks:
Due to the recent market downturn, many investors have lost a substantial amount of money in annuities. They have complained that their advisors represented the annuities to be “safe” products that would not lose money. However, many advisors failed to disclose to their customers all of the risks associated with annuities.