As an attorney who represents investors, I often speak with clients after their “safe” investment, the one their trusted financial advisor recommended, is either losing money or not gaining at the promised rate of return. Often, that product is a complex annuity. More and more, I am seeing cases involving so-called L-Series Annuities, also known as Registered Index-Linked Annuities (RILAs) or “buffer” annuities.
Your broker likely sold you this product by highlighting the “buffer”—a promise of protection against some market downturns. They probably told you it was the best of both worlds: market gains with less risk. What they may not have told you is that the buffer has a limit, and once the market drops past it, your principal is at risk. They may not have clearly explained the hard cap on your gains, the crippling surrender fees that lock up your money for years, and/or that the fees charged by the insurance company make it very difficult for the annuity to achieve growth.
If this sounds familiar, you may have been a victim of misrepresentation, sold an unsuitable investment, or sold an investment that was not in your best interest. I want to be clear: you may be able to recover your losses.
What is an L-Series Annuity (and Why Was It Sold to You)?
In simple terms, an L-series annuity is a contract with an insurance company that links your returns to a market index, like the S&P 500. Its main selling point is a feature called a “buffer.”
The broker’s pitch goes something like this: The annuity offers a buffer against a certain amount of loss (e.g., the first 10% of a market drop). In exchange for that protection, your potential earnings are “capped” at a certain level. Brokers often focus entirely on the buffer, marketing it as a form of principal protection or a “win-win” scenario. They make it sound like you get the market’s upside with none of the downside.
Unfortunately, the reality is far more complex and, for many investors, far more dangerous.
The Hidden Dangers Your Broker Didn’t Explain
These products are profitable for brokerage firms and pay high commissions to advisors. This incentive can lead some brokers to downplay the significant risks and sell the product to investors for whom it is completely inappropriate. Here are the risks they often fail to properly disclose.
The Buffer is Not a Guarantee
Let’s be perfectly clear: the buffer on these annuities is a marketing tool, not an ironclad guarantee. A broker might say you have a “10% buffer,” making it sound like your money is safe from the first 10% of any market loss. But what happens if the market drops 15%? You don’t lose 5%; you are exposed to the losses beyond the buffer. In this scenario, you still lose money. For many investors who were told this was a “protected” investment, this comes as a complete shock. A broker has a duty to explain the specific circumstances under which your principal is at risk. Focusing only on the buffer while minimizing the potential for loss is a classic sign of misrepresentation.
Confusing Crediting Methods & Performance Caps
While the buffer limits your downside, the “cap rate” severely limits your upside. For example, if the market goes up 20% but your annuity has an 8% cap, the most you can earn is 8%. In a strong market, you could miss out on significant gains you would have realized in a more straightforward investment. Brokers often fail to adequately explain how restrictive these caps are or how the complex crediting methods are calculated, leaving investors with returns that are far less than what they were led to expect.
High Fees and Long Surrender Periods
One of the most damaging features of L-series annuities is their lack of liquidity. These products are designed to be held for the long term, often 7 to 10 years or more. If you need to access your money before the surrender period is over, you will face massive penalties that can erase any gains you may have made and even eat into your principal. Brokers who sell these products to investors who may need access to their capital—for retirement income, emergencies, or other needs—are often making a recommendation that is inappropriate for an investor.
Do You Have a Claim for Your L-Series Annuity Losses?
Financial advisors and their firms have a legal obligation to only recommend investments that are appropriate for their clients’ financial situation, age, risk tolerance, and investment goals. If you lost money in an L-series annuity, ask yourself the following questions:
- Did your broker fail to explain that you could lose your principal if the market dropped below the buffer?
- Did they present the investment as “safe,” “protected,” or “guaranteed”?
- Did they gloss over the high surrender charges and the fact that your money would be locked up for years?
- Did they fail to explain how the cap on gains would limit your investment’s performance?
- Was a large portion of your retirement savings or net worth concentrated in this single, complex product?
- Were you guaranteed a certain return on a yearly basis or guaranteed a specified return over a set period of time?
If you answered “yes” to any of these questions, your broker may have violated their duty to you. You do not have to accept these losses.
I Hold Brokers and Firms Accountable. Here’s How.
When a brokerage firm sells an unsuitable product or its advisor misrepresents the risks, they can be held financially liable for the investor’s losses. My practice is dedicated to helping investors fight back against Wall Street firms.
We pursue these cases through FINRA arbitration, a forum that Wall Street requires investors to utilize to resolve disputes between investors and brokers. It is often faster and more efficient than going to court. I have extensive experience navigating the FINRA process and have successfully recovered funds for clients who were sold inappropriate and complex financial products, including various types of annuities. My goal is simple: to make you whole again.
Contact Me for a Free, Confidential Case Evaluation
You worked hard for your money. You placed your trust in a financial professional who was supposed to act in your best interest. If that trust was broken and you suffered losses in an L-series, RILA, or buffer annuity, you deserve to know your rights.
Contact my office today for a free, no-obligation consultation. I will personally review the details of your case, explain your legal options, and tell you exactly how I can help. Don’t let a brokerage firm tell you that your losses were simply “a result of market conditions.” Let’s hold them accountable for their recommendations.
Seth Hill is a Shareholder at Halling and Cayo, a full service law firm in Milwaukee, WI and part of its Securities Litigation team.
Attorney Hill’s practice focuses on investor’s rights and securities litigation within the FINRA arbitration forum.
Contact him at 414-271-3400 or via e-mail at DSH@hallingcayo.com to see if he can help recover funds.