The complex product known as a variable annuity has become a little more complicated with the introduction of a new type of VA known as a buffer annuity. Buffers, like conventional VAs, are highly complex, but unlike VAs, use structured products (as opposed to mutual funds) in the underlying investment sub account. In other words, a buffer is an evolved complex product, which itself is tied to the performance of another complex product, which invariably creates exponentially greater risk.
According to its Western Regional Director, Donald Lopezi, FINRA received complaints in the west about buffer annuities and the California Department of Business Oversight similarly has been in contact with the California insurance commissioner over buffer annuities.
Buffer annuities, in fact, are so complex compared to even a more traditional VA, that Lopezi found, "some individuals who really understand VAs...were struggling with this. You have to wonder, does the firm understand it? Does the rep?"
The buffer's origins trace back to 2014, when InvestmentNews reported that industry insiders had once again turned to financial alchemy in the creation of a new annuities product that uses structured products to buffer investors' account values against downside losses.
According to the new formula, buffer annuities can link a wide variety of structured investments within its contract, such as emerging-market and real estate investment trust (REIT) index options.
In other words, a buffer annuity conceivably could manifest as a complex product, or host of linked complex products, within a separate and more complicated complex product.
According to InvestmentNews at the time, only Allianz Life Insurance Company of North America (Indexed Advantage annuity), AXA Equitable Life Insurance Co. (Structured Capital Strategies VA) and Metlife Inc. (Shield Level Selector) were selling buffer annuities. CUNA Mutual and Voya Financial (PotentialPlus Annuity) also placed SEC filings to sell this newest complex product.
Wells Fargo, in 2014, meanwhile expressed concern regarding the already-existing "lot of moving parts" variable annuity and a buffer's attempt to complicate matters by placing structured notes inside of the VA: "We're not there yet, where we feel comfortable that brokers can be properly trained on it."
If you have invested in a buffer annuity or similarly complex product sold by a broker or financial adviser inadequately trained in its properties, or who in turn failed to adequately disclose, inform, or educate you as to the features—and significant risks—of this emerging investment vehicle, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.
News: Complaints surface at Finra over buffer annuities (InvestmentNews)