June 22, 2007

A Department of Financial Services news release

While investors may be lured into the purchase of an equity indexed annuity believing that they will realize returns similar to that of an index, such at the S&P 50, such a belief may not be reasonable. Equity indexed annuities can be complex, long-term investments carrying high surrender charges, and investors should consider getting advice from more than one financial professional prior to investing in such products.

When considering buying annuity products CFO Alex Sink offers Floridians the following advice:

  • Find out the specifics of the particular annuity you are considering (variable or equity-indexed);
  • Request a prospectus from the insurance company or from your financial professional, and read it carefully;
  • Compare the benefits and costs of the annuity to other annuities and to other types of investments (stocks, bonds and mutual funds;
  • Carefully assess financial goals - variable and equity index annuities are designed to be long-term investments to meet long term goals such as retirement;
  • Equity-index annuities are complicated investment products that may contain several features that can affect your investment return. Make sure you understand how an equity indexed annuity computes its index-linked interest rate before you buy.
  • Consult a tax adviser and consider all the tax consequences of purchasing an annuity, including the effect of annuity payments on your tax status in retirement.
  • Ask the sales agent about the licenses and/or designations he or she holds, and what types of investment choices he or she can offer you;
  • Ask about commissions, fees, penalties, surrender charges and any other associated costs. Get the figures in writing;
  • Before you surrender an in-force investment to purchase a new product, call the company to find out if you will suffer a surrender charge, and if so, how much it will be. The cost of a transfer may outweigh any benefit of a new product;
  • Beware of "bonus" interest rates, as they may be limited in duration and have strings attached, and sales pitches that claim you will "recoup" all penalties with higher returns;
  • Take your time. High-pressure sales tactics will rush you into an unwise decision. A sound investment will be just as good tomorrow or next week;
  • Document all transactions; and
  • Remember, if it sounds too good to be true, it probably is.

Consumers who believe they have been victim of financial fraud should call the Department's Consumer Helpline at 1-800-342-2762 or log on to www.fldfs.com to file a complaint.