Many older people find themselves in tricky situations with their savings. One issue is “Annuity Fraud Against Seniors“. Our firm has received many calls on this issue.
If you or a loved one bought an annuity but were unaware of the fees and expenses, we may be able to help. Please contact us for a free private consultation on recovering losses.
This blog will guide you through a retiree’s story, showing the risks of unseen fees in annuities.
Keep reading to learn how to avoid these traps.
Key Takeaways
Table of Contents
- A 78-year-old from Tennessee faced a $26,000 penalty for trying to withdraw money early from a 10-year annuity secretly placed by an asset and wealth management group.
- Certified financial planners emphasize that selling annuities without full disclosure violates fiduciary standards. Seniors often don’t fully understand the terms, leading to unexpected financial burdens.
- SmartAsset offers tools to find fiduciary advisers who can help retirees manage their investments wisely and avoid traps like hidden fees in annuities.
- Retirees have options such as using the free-look period to cancel unwanted annuities without penalties or exploring legal avenues if misled about their investments.
- Filing complaints with regulatory bodies like FINRA and state insurance commissioners can help resolve disputes over misleading annuity sales practices.
Case Study: Retiree Sold Annuity Without Knowing The Fees
A 78-year-old retiree experienced significant issues with an asset and wealth management group. The allocation of funds into a 10-year annuity occurred without proper communication, resulting in implications of withdrawal penalty.
78-year-old retiree’s experience with an asset and wealth management group
A 78-year-old retiree in Tennessee had trouble with an asset and wealth management group. The group put three-fourths of the retiree’s savings into a 10-year annuity. This choice was made without clear communication, causing problems for the senior citizen.
The retiree now faces a $26,000 penalty if they try to get their money out before ten years are up. Certified financial planner Alonso Rodriguez Segarra pointed out that selling such an annuity without proper explanation goes against fiduciary standards.
This situation has left the retiree looking for ways to handle these unforeseen issues.
Allocation of funds into a 10-year annuity without proper communication
Shifting from the broad exposure of managing retirement investments, a considerable error was made when resources were directed into a 10-year annuity. The investment advisor failed to clarify this choice comprehensively.
As a result, three-fourths of the retiree’s total contributions went into this financial product without his full comprehension.
The absence of disclosure symbolizes a fiduciary violation. – Certified Financial Planner Alonso Rodriguez Segarra
This gap in communication implied that the retiree was uninformed of a substantial $26,000 withdrawal penalty for accessing funds before the annuity’s maturity. This penalty poses a significant effect on retirement planning and underlines the necessity for open financial consultation.
Implications of withdrawal penalty
The individual nearing retirement confronted a $26,000 penalty for withdrawing funds from the annuity before the 10 years term. These penalties are enforced as the annuity was intended to remain untouched until it reached maturity after the decade.
Joe Favorito, a certified financial planner, highlights that customers often lack a complete understanding of what they’re committing to. This knowledge gap can lead to significant shocks when they require access to their funds.
Favorito further shares some positive information: many annuities allow the withdrawal of up to 10% of your original investment annually without incurring a penalty. This provision lends retirees some adaptability with their retirement savings, but challenges occur if they require more than that 10%.
The associated costs and severe penalties of premature withdrawals emphasize the necessity of fully understanding your financial agreements, particularly concerning one’s financial future with annuities.
Importance of Fiduciary Advisers for Retirees
Retirees need fiduciary advisers to prioritize their best interests, offering them dependable financial planning and investment advice. Finding fiduciary financial advisers through SmartAsset ensures retirees receive personalized guidance in handling the intricacies of retirement investments.
Legal requirement to prioritize clients’ best interests
Financial advisers have a legal obligation to prioritize clients’ best interests, particularly for retirees. The Department of Labor (DOL) has introduced new fiduciary standards, emphasizing the importance of acting in the best interest of clients, especially those planning for retirement.
This rule aims to enhance transparency and accountability in financial advising, ensuring ethical responsibility, regulatory compliance, and investor protection. Moreover, certified financial planner Alonso Rodriguez Segarra emphasizes fiduciary standards as essential for clients over 78 years old.
SmartAsset tool for finding fiduciary financial advisers
SmartAsset provides a free tool to assist individuals in finding fiduciary financial advisers. This tool can connect users with up to three screened fiduciary advisers in their area.
Fiduciary advisers are legally obligated to prioritize clients’ best interests, and the initial consultations are arranged through the SmartAsset tool.
This valuable resource ensures retirees have access to reliable and legally bound professionals who put their financial well-being first. By using this tool, retirees can proactively take steps to safeguard their retirement savings with confidence and peace of mind.
Options for Retiree Facing Annuity Issues
Retirees facing annuity issues have several potential courses of action. They can utilize the free-look period for annuity contracts, explore surrender fees for exiting annuities, and file complaints with FINRA and the state insurance commissioner’s office.
Free-look period for annuity contracts
The free-look period for annuity contracts allows policyholders a grace period, typically lasting at least 10 days, during which they can review the contract terms. This provides an opportunity to terminate the policy without incurring any penalties if dissatisfied. Here are some important details regarding the free-look period:
- Duration of the Free-Look Period: The free-look period can vary between 10 to 30 days based on state regulations.
- Termination Without Penalties: If within the free-look period, policyholders have the right to terminate the annuity contract without facing any withdrawal or surrender fees.
- Refund Window: During this period, individuals can receive a full refund of their premium payments if they choose to cancel the annuity.
- Adviser’s Counsel: Certified financial planner Joe Favorito emphasizes the importance of carefully reviewing the annuity contract for specific details regarding the free-look period.
Understanding and utilizing the free-look period is crucial for retirees who may find themselves in a similar situation as it offers protection and an opportunity to reassess their investment decisions.
Next heading: Importance of Fiduciary Advisers for Retirees
Surrender fees for exiting annuities
After reviewing the annuity contract, it is essential to understand the potential surrender fees for exiting annuities. These charges can reach up to 7% of the annuity’s value and diminish over time. Here are important details about surrender fees for exiting annuities:
- Early withdrawal penalties: Annuity holders may face a 10% IRS penalty for withdrawals before age 59½.
- Exceptions to surrender charges: Reviewing the annuity contract can reveal exceptions that waive surrender charges, providing potential flexibility for certain circumstances.
- Diminishing surrender charges: Surrender charges gradually decrease over time, often reaching zero after a specific number of years as stipulated in the annuity contract.
- Penalties for withdrawals before age 59½: The IRS imposes a 10% penalty on withdrawals made before reaching the age of 59½, potentially increasing financial consequences.
- Annuity value penalties: Surrendering an annuity before a specified period can lead to substantial reductions in its overall value due to imposed penalties and fees.
- Surrender charge waivers: Some annuities offer provisions where surrender charges are waived under certain conditions, providing relief from potential financial penalties.
Filing complaints with FINRA and state insurance commissioner’s office
Submitting complaints to FINRA and the state insurance commissioner can provide a way of addressing annuity issues. Here is how retirees can take action:
- Contacting FINRA: The Financial Industry Regulatory Authority (FINRA) has a Complaint Program for investigating issues against brokerage firms and their employees. Retirees should gather written documentation before submitting a complaint to FINRA.
- Initiating Complaint Process: Once documentation is prepared, retirees can submit a complaint to FINRA, which offers arbitration and mediation services for dispute resolution.
- Involving State Insurance Commissioner: Additionally, reaching out to the state’s insurance commissioner’s office can provide retirees with extra assistance in addressing annuity concerns.
- Seeking Resolution: Retirees could find it helpful to use FINRA and the state insurance commissioner for resolving annuity disputes effectively.
- Reporting Annuity Issues: Steps for reporting annuity problems to both FINRA and the state insurance commissioner should be carefully followed by providing factual details of the situation.
- Utilizing Resources: Retirees can seek assistance from both FINRA and the state insurance commissioner when facing annuity-related challenges to ensure their complaints are addressed comprehensively.
- Addressing Annuity Concerns: By submitting complaints about annuity problems with both FINRA and the state insurance commissioner, retirees can work towards resolving their issues through established regulatory channels.
Seeking Resolution and Potential Legal Action
Retirees encountering annuity challenges can resolve them through the free-look period and surrender fees, or by filing complaints with regulatory authorities such as FINRA and state insurance commissioners.
To discover more about addressing annuity challenges and potential legal actions, please talk to an investment fraud lawyer.
Reaching out to the investment representative’s manager or supervisor
Retirees should directly contact the investment representative’s manager or supervisor when encountering issues with their annuities. This step can lead to a resolution of the problem and potential legal action if required.
It is crucial to document all interactions for future reference, especially while communicating with higher-ups in the financial advisory field. Certified financial planner Bruce Primeau advises that initiating a conversation with the investment advisor’s higher management could provide solutions and valuable guidance in managing complex annuity disputes.
Consideration of legal action
If resolution efforts fail, pursuing legal recourse may be necessary. Haselkorn & Thibaut (InvestmentFraudLawyers.com) can assist in finding specialized attorneys for these matters. Notably, Allianz Life Insurance Company settled a lawsuit over the alleged selling of deferred annuities to senior citizens, highlighting potential options for those facing similar challenges.
Certified financial planner Mark Humphries cautions that professionals having multiple financial roles could present hurdles for clients seeking redress through legal channels.
Conclusion
The retiree’s annuity allocation without fee disclosure led to potential withdrawal penalties. Retirees should prioritize working with fiduciary advisers. Understanding annuity contract terms and free-look periods is crucial for resolution. Filing complaints with FINRA and state insurance commissioners can provide assistance in resolving annuity issues.Transparency and understanding of fee structures are vital in financial transactions involving annuities.
