Complaints Concerning the Sale of Buffer Annuities

FINRA, the regulatory body for securities brokerage firms and brokers, has noted an increase in customer complaints involving buffer annuities.   Buffer annuities have been described as a cross between equity-indexed annuities and variable annuities.  The theory is that buffer annuities provide another investment option to customers who have a tolerance for risk that is higher than the risk associated with equity-indexed annuities but less than the risk associated with variable annuities. The money deposited into a buffer annuity is invested in structured products such as option contracts, futures, and swaps.

While variable annuities offer no protection against market losses, so-called buffer annuities protect against market losses up to specific percentage, but offer higher caps on potential gains than equity-indexed annuities.  Equity-indexed annuities have lower caps on potential gains but do not subject the principal investment to market losses.  For example, with a buffer annuity, the insurance company may agree to absorb up to a 9% market loss in a given year (with the customer absorbing any greater loss) in exchange for a higher cap on potential gains, say at 8%, instead of a 4% cap that might be seen in an equity-indexed annuity.  

Complaints concerning buffer annuities have focused on:

  1. Misrepresentations and omissions of material fact concerning the increased risk of buffer annuities as compared to other annuity and investment options.
  2. Failure to disclose lock-up periods, or surrender charges (i.e., penalties that must be paid if a customer's money is withdrawn from the annuity within a period of years).
  3. Lack of suitability in light of a particular customer's risk tolerance, investment objective, and financial circumstances.
  4. Misrepresentations and omissions of material fact concerning the manner in which the the money is invested in a buffer annuity and how the potential gains are calculated and capped.  

Some of the insurance companies that offer buffer annuities include Voya Financial, CUNA Mutual, MetLife, AXA Equitable Life Insurance Co., Allianz Life Insurance Co. of North America, Brighthouse Financial, and Members Life Insurance Co.

Over the past 16 years, Joel Ewusiak has represented numerous customers, brokerage firms, brokers, insurance agents, and insurance brokers in lawsuits and arbitration proceedings involving the sale of annuities. Please contact Joel for legal assistance with your particular matter.