So Much for 3% Guarantee on an Equity-Indexed Annuity

Q: Our financial advisor advised and sold my wife, who was 64 at the time, two equity-indexed annuity contracts. The markets, as you know, were jumpy, and we had lost a considerable amount in the last major downslide, so these EIA's looked attractive...

However, the long term of the contracts concerned us. The financial advisor said that we wouldn't be holding it that long, and would be taking out 10%, penalty free, each year and investing it in other areas. In addition, in his description of the product, he indicated that regardless of the market, we would be guaranteed a 3% gain each year.

Well, the first year our index (S&P 500) did not perform well and we did not gain anything from the index. When we took a look at our investment after the anniversary date, we saw that there was no increase of 3 percent as we had thought. A few words were spoken with this financial advisor and he said we misunderstood and that the 3% was to the insurance part of the contract. This we did not understand at all.

I should explain that at the time of purchase, we thought we understood the financial advisor as having a plan to get us out of the EIA contracts without penalty, however, after some further discussion, we now understand that what he had in mind is not possible. Quite frankly, I cannot tell you what he had in mind to start with.

We are now learning and reading more about how this was not a wise investment. Your article on equity-indexed annuities addresses that well, as has some other financial advisor friends of mine.

Based on all this input, I have started an inquiry to the insurance company carrying the EIA to see if there is some way to terminate these contracts without penalty. The argument being that the financial advisor probably shouldn't have sold this product to a retiree, or potentially had misrepresented it.

In addition, I have made an inquiry to our state insurance department to see if they are currently taking any action to see that these EIA's are being sold properly, and to see if there is any recourse at this time to terminate our contracts without penalties.

I guess my question to you is, is there any recourse that you are aware of that we could use to terminate these contracts? I'm not ready to accuse the financial advisor of fraud, but there is a question in our minds as to just how clear he was describing these contracts. Probably not a solid basis to do anything legally, but I am just wondering if others have been able to get out of them without hurting themselves financially.

A: There are a few things you need to understand. You were taken advantage of. Whether the advisor knew what he was doing or not, that doesn't change the fact that you were taken advantage of.

Secondly, it is the advisors responsibility to understand what he is selling. He obviously didn't.

You should probably also seek legal recourse. What EIAs are you in?

What state do you live in? I may know an attorney that I can refer you to.

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