Communication between Gloria and the broker was entirely crippled by her anger and his defensiveness (heightened by the initiation of an arbitration process.) After checking with her attorney, it was decided to remove the broker as the representative on the policies and establish Gloria's relationship directly with the four insurance companies. We drafted letters for her signature to change her annuities to "house accounts" so that, with our guidance, she could initiate regular "penalty-free" withdrawals after every anniversary date, and from time to time could give instructions to the carriers to change her investment allocations. To date we have been successful with eight of the 12 policies; insurers have ignored the request on the other four, and we are pursuing the matter.

Summary

We all know that variable annuities, while they have a legitimate place in the lineup of modern financial products, are frequently misused. Many of us have had dissatisfied owners show up in our offices looking for guidance. We have learned from experience that there are limits to the assistance we can render, depending on each person's circumstances. Gloria's story is representative, and offers some perspective that might be helpful the next time you are asked to assist someone who may have been badly served by a former advisor.

The place to begin is to read the annuity contracts in question and organize the important information for reference and comparison. This should include: insurer and policy number, representative, address and phone, date of issue, whether a signed contract is available, owners, beneficiaries, original investment, death benefit, special features and riders (such as a guaranteed retirement benefit, inflation protector, etc), current market value, investment subaccounts, available investment elections, terms of surrender fees and "penalty-free" withdrawals, and all the built-in expenses.

After organizing all the pertinent information, I develop my advice by exploring five questions:

Might a legal complaint be appropriate?

Might a 1035 exchange be appropriate/affordable?

Are withdrawals appropriate/affordable?

Might immediate annuitization be appropriate?

Can the annuity investment portfolio be improved?

It is important to keep in mind the need to defer to attorneys, expert witnesses and insurance professionals with respect to those issues for which we are not licensed. Recent media reports indicate that an increasing number of annuity complaints have been successful in arbitration, so if a case that shows up on your desk looks egregious, I wouldn't hesitate to recommend that the client seek counsel.