When securities regulators examined 110 firms that ran free lunch sales seminars, 57% used advertising or sales materials that may have been misleading or exaggerated, and 23% showed signs of unsuitable recommendations (SEC, NASAA and FINRA, Protecting Senior Investors: Report of Examinations of Securities Firms Providing Free Lunch Sales Seminars, September 2007).
Is an annuity a scam, or is the sale the problem?
When people search for annuity scams, they usually mean one of two things. Either someone took their money outright, which is a crime and is covered in our retirement scams guide, or they bought a legal annuity that did not fit them and only found out when they tried to get their money back.
The second case is far more common. An annuity is a contract with an insurance company. It is regulated by your state insurance department, and variable annuities are also regulated as securities. The product type is not the scam. The risk is a sales process that leaves out the costs, the surrender years, or the reason the seller is so eager.
The salesperson may describe a deferred annuity as safe, liquid and paying a high rate. The contract usually says something narrower: the money is safe from market loss but tied up for years, early withdrawals above a free amount cost a surrender charge, and the high number may be a first-year bonus or an income rider rollup, not cash you can take. See how surrender charges work.
What regulators found at free lunch seminars
In September 2007 the Securities and Exchange Commission (SEC), the North American Securities Administrators Association (NASAA) and the Financial Industry Regulatory Authority (FINRA) published a joint report on 110 examinations of firms that held free meal sales seminars for older investors (SEC, NASAA and FINRA, September 2007). The findings, in the report's own numbers:
- 63 of 110 exams (57%): advertising or sales materials that may have been misleading, exaggerated or included unwarranted claims.
- 65 of 110 (59%): signs of weak supervision of the seminars.
- 25 of 110 (23%): signs of unsuitable recommendations made at the seminar or afterward.
- 14 of 110 (13%): indications of possible fraudulent practices.
- 5 of 110 (4%): no problems found.
Variable annuities and equity indexed annuities were among the products most often discussed. The report put it plainly: the primary goal of the sponsors of these seminars is to obtain new customers and sell products. The meal is a marketing cost, and it is paid for by the sales that follow.
The report examined securities firms. Sellers who hold only an insurance license were not part of it.
Senior titles that sound official
Some sellers use titles like senior specialist or retirement advisor. The SEC and FINRA do not endorse these designations, and the SEC notes that some are quick and easy to obtain, even with no relevant experience (Investor.gov, Senior Specialists Designations, checked October 14, 2026).
A title is not a license. Look up the seller's insurance license with your state insurance department, and for variable annuities, look them up on FINRA BrokerCheck, which also shows disciplinary history.
Churning: when a swap restarts the clock
Churning means replacing a contract you already own mainly so a new sale can be made. With annuities it usually happens through a 1035 exchange, which moves money between annuities without current income tax. The tax benefit is real, but you may pay a surrender charge to leave the old contract and start a new surrender period on the new one (Investor.gov, Variable Annuities, checked October 14, 2026).
Regulators watch for this. The National Association of Insurance Commissioners (NAIC) replacement model regulation (Model 613) requires the new insurer to give you notice of a right to return the replacement contract within 30 days of delivery for a refund (NAIC Model 613, 2015 edition). The NAIC annuity suitability model (Model 275) tells the seller to consider whether you will pay a surrender charge, start a new surrender period or lose benefits, and whether you had another exchange in the preceding 60 months. For deferred variable annuities, FINRA Rule 2330 requires the broker to consider those same costs and any other variable annuity exchange in the preceding 36 months, and to document the reasons in writing (FINRA Rule 2330, checked October 14, 2026).
States adopt these models in their own words, so the exact rules can differ where you live.
The best interest rule, and what it does not do
In February 2020 the NAIC revised Model 275 to require that annuity recommendations be in the consumer's best interest, without putting the seller's or insurer's financial interest ahead of yours. As of August 8, 2025, the NAIC counted 49 jurisdictions that had put the revision in place (NAIC, Annuity Suitability Best Interest Model Regulation brief, August 2025).
Under the model, the seller must tell you how they are paid, including whether by commission, and you have the right to ask for more detail about cash compensation. The same model also says these duties do not create a fiduciary relationship (NAIC Model 275, 2020 edition). The rule raises the floor. It does not turn a commissioned seller into a neutral advisor.
When an annuity can make sense
A plain annuity can be a fair fit for someone who will not need the money during the surrender years, wants a guaranteed rate or lifetime income, and has other savings for emergencies. A well-explained sale with written answers is not a red flag. A rushed one is.
How to check a seller and how to report a bad sale
- State insurance department. Every annuity seller needs a state insurance license. Your department can confirm it and takes complaints about annuity sales, including indexed and fixed annuities. The NAIC Consumer Insurance Search helps you find the company and your department.
- FINRA. For variable annuities, check the broker on BrokerCheck and file a complaint through FINRA. Older investors can call the FINRA Securities Helpline for Seniors at 844-574-3577, Monday to Friday, 9 a.m. to 5 p.m. Eastern (FINRA, checked October 14, 2026).
- SEC. Tips and complaints about securities, including variable annuities, go through the SEC tips portal at sec.gov/tcr.
- Your state securities regulator. NASAA lists every state regulator on its contact page.
- Adult Protective Services. If you think an older relative is being pressured or exploited, the Eldercare Locator at 1-800-677-1116 can connect you with local help (Eldercare Locator, checked October 14, 2026).
If the contract arrived recently, the fastest fix may be the free look period, which lets you cancel for a refund within a set number of days.
A plain example: what a replacement can cost
All numbers below are hypothetical. Suppose you own an annuity worth $400,000 in its fourth year, with a 4% surrender charge this year and three years left on the schedule. A seller suggests a 1035 exchange into a new annuity with a 5% first-year bonus and a new 10-year surrender schedule.
| Item (hypothetical) | Amount |
|---|---|
| Value of current annuity | $400,000 |
| Surrender charge to leave (4% x $400,000) | -$16,000 |
| Amount moved to new annuity | $384,000 |
| Bonus credited (5% x $384,000) | +$19,200 |
| Starting value in new annuity | $403,200 |
| Years before money is free of charges: stay vs switch | 3 vs 10 |
On paper you end up $3,200 ahead. In exchange, your money is tied up seven years longer, and many bonus products pay for the bonus with lower rates or caps later. Ask for the new contract's rates and caps in writing, and compare them with what the old contract pays now.
The replacement form your state requires should show this comparison. If no one hands you one, that alone is a reason to stop.
Red flags
- An invitation to a free lunch or dinner seminar about retirement safety, where the host's company is not named on the invitation.
- A title such as senior specialist or retirement protection advisor offered as proof of expertise, instead of a license number you can look up.
- A pitch to move an annuity you already own, especially one still in its surrender period.
- A bonus described as free money, without a matching explanation of the new surrender schedule.
- A quoted rate that turns out to be an income rider rollup or a first-year bonus, not the interest your cash value earns.
- Pressure to sign the same day, or a claim that the rate or offer ends this week.
- A recommendation to put most of your savings, or money you may need within a few years, into one annuity.
- Reluctance to say how the seller is paid, or to put the answer in writing.
- Being told to leave a replacement form blank or to answer that no existing annuity is being replaced.
- A request to make a check out to the seller personally rather than to the insurance company.
- Discouraging you from talking to family, a tax professional or anyone else before you sign.
- Telling you the free look period does not apply or that cancelling now would cost you.
Questions to ask before you sign
- Is this sale a replacement of something I already own, and where is the written replacement comparison?
- What surrender charge will I pay on my current contract if I switch, in dollars?
- How many years does the new surrender schedule run, and what is the charge in each year?
- How are you paid on this sale, and do you earn more on this product than on others you could offer?
- What rate or cap is guaranteed for the full term, and what can the insurer change after year one?
- Is the number you quoted interest I can withdraw, or an income rider value?
- What is your insurance license number, and are you registered with FINRA if this is a variable annuity?
- What designation do you hold, and what did you have to do to earn it?
- How long is my free look period, and when does it start?
- What happens to this money if I need a large part of it in the next three years?
- Can I take the paperwork home and review it with someone else before I sign?
- Who sponsored this seminar, and is any insurer paying for it?
Read This Before You Sign
A one-page checklist: the red flags in annuity and indexed universal life (IUL) sales, and the questions to ask before you sign anything. Spot pressure sales, check a seller's license, and know where to report an annuity sale that went wrong. We’ll email it to you.
The Retirement Literacy Foundation is a 501(c)(3) public charity (EIN 41-5062266). General education, not tax, legal or investment advice. Nothing is sold here. Unsubscribe any time.
Sources
- SEC, NASAA and FINRA: Protecting Senior Investors: Report of Examinations of Securities Firms Providing Free Lunch Sales Seminars (September 2007)
- NAIC: Annuity Suitability Best Interest Model Regulation, government affairs brief (August 2025, status as of August 8, 2025)
- NAIC: Suitability in Annuity Transactions Model Regulation, Model 275 (2020 edition)
- NAIC: Life Insurance and Annuities Replacement Model Regulation, Model 613 (2015 edition)
- FINRA: Rule 2330, Members' Responsibilities Regarding Deferred Variable Annuities (checked October 14, 2026)
- Investor.gov (SEC): Senior Specialists Designations (checked October 14, 2026)
- Investor.gov (SEC): Variable Annuities (checked October 14, 2026)
- FINRA: Securities Helpline for Seniors (checked October 14, 2026)
- Administration for Community Living: Eldercare Locator (checked October 14, 2026)
- NAIC: Consumer Insurance Search (checked October 14, 2026)
The Retirement Literacy Foundation is a 501(c)(3) public charity. This page is general education, not tax, legal or investment advice. Nothing is sold here, no product is recommended, and RLF accepts no funding from financial companies. Rules and figures change; each one above shows its source and date. Check anything you plan to act on with your state insurance department or a qualified professional who is not paid on the product.