RILA and Annuity Lawyer: Index-Linked, Variable and Fixed Indexed Annuity Losses

What Is a RILA?

A registered index-linked annuity ("RILA") ties your return to a market index, with limits in both directions. Your upside is capped, and your downside protection is limited to a "buffer" or a "floor":

• Buffer. The insurer absorbs losses only up to a set amount, and you take the rest. With a 10% buffer, if the index falls 12%, you lose 2%. If it falls 30%, you lose 20%.

• Floor. Your loss is limited to a set amount, but you bear every loss up to it. With a 10% floor, you can lose up to 10%.

Unlike a fixed indexed annuity, a RILA can lose money. A buffered RILA works much like a structured note in an annuity wrapper: a capped gain, limited protection, and costs you never see on a bill.

RILAs are now big business. Sales hit a record of about $79.5 billion in 2025, according to the insurance industry research group LIMRA.

Fixed Indexed Annuities, Variable Annuities and Annuity Exchanges

• Fixed indexed annuities. Interest is credited based on an index, subject to caps and participation rates that the insurer can change over time. The credited rate cannot fall below zero, but the limits can leave you with a fraction of the market's gain.

• Variable annuities. Your money goes into investment options, much like mutual funds, with no limit on losses. Layers of fees sit on top: insurance charges, administrative fees, fund expenses and charges for riders, such as a guaranteed income or death benefit.

• Annuity exchanges. Swapping an annuity you already own for a new one. An exchange can start a new surrender-charge period and earn your financial advisor a new commission. A "bonus" offered to switch may be offset by higher costs.

The Hidden Cost: Caps, Fees and Surrender Charges

Annuities can cost far more than they appear to. Many RILAs and fixed indexed annuities are sold as having "no fees," but the cost is built into the product instead. The cap and participation rate limit what you earn, and index gains are usually measured without the dividends paid on the stocks in the index. Those limits can reduce your return just as a fee would.

Rider fees and ongoing charges reduce your return every year. Surrender charges often last six to ten years or longer, so getting out early can mean a large penalty. When those costs are not explained, or a cheaper, simpler investment could have done the same job, that matters.

Which Rules Apply?

The rules depend on the product. RILAs and variable annuities are securities, so the Securities and Exchange Commission's ("SEC's") Regulation Best Interest ("Reg BI") and FINRA rules generally apply when a brokerage firm recommends them. Under Reg BI, a brokerage firm and its financial advisors must act in your best interest when they recommend an investment, and may not put their own interests ahead of yours. That includes understanding the product's risks, rewards and costs, and having a reasonable basis to believe it is in your best interest given your age, goals, finances and risk tolerance. The SEC has made clear that cost must always be considered, and that a firm generally should consider reasonably available alternatives.

For deferred variable annuities, FINRA Rule 2330 adds specific suitability and supervision duties. Your financial advisor must have a reasonable basis to believe you were told about key features such as surrender charges, rider fees and market risk. For an exchange, the firm must weigh whether you would pay a surrender charge, start a new surrender period, lose existing benefits or pay higher fees, and whether you made another exchange in the past 36 months. A supervising principal must review the sale.

Fixed indexed annuities are generally regulated as insurance, so claims may rest instead on misrepresentation, breach of fiduciary duty, or state insurance rules such as New York's best-interest rule for annuity sales (Regulation 187). Nearly every state has also adopted a version of the National Association of Insurance Commissioners' ("NAIC's") Suitability in Annuity Transactions Model Regulation, which since 2020 requires insurance agents to act in your best interest when they recommend an annuity.

Common Claims in Annuity Cases

• Reg BI violations: an annuity that was not in your best interest given your age, goals, need for access to your money, or its cost compared with reasonably available alternatives.

• Annuity switching: an exchange that started a new surrender-charge period, added fees or gave up benefits you already had, mainly to generate a new commission.

• Misrepresentation and omission: an annuity described as "safe," "guaranteed" or "protected," or one whose cap, buffer, fees or surrender charges were never explained. See fraud and misrepresentation.

• Overconcentration: too much of your savings tied up in annuities you cannot leave without a penalty.

• Breach of fiduciary duty: an advisor who put its own compensation ahead of your interests. See breach of fiduciary duty.

• Failure to supervise: a firm that let repeat exchanges or concentration go unchecked.

When many investors were sold the same annuity by the same financial advisor or firm, see group cases.

Warning Signs in Your Account

• Your financial advisor recommended replacing an annuity you already owned.

• You were told your money was "protected," without being told the limits of the buffer or floor.

• No one can tell you what the annuity costs you each year, all in.

• You need access to your money, but surrender charges would take a large bite.

• An annuity was placed inside your 401(k) and IRA accounts, which are already tax-deferred, so the annuity added cost without adding tax deferral.

• You are retired or nearing retirement, and a large share of your 401(k) and IRA savings went into annuities. See poor retirement advice and senior fraud and elder abuse.

How Brokerage Firms Defend These Cases

Daren spent years on the defense side, so he knows the playbook:

• "The risks were in the prospectus." Written disclosures matter, but they do not automatically defeat a claim, especially when what your financial advisor told you was different.

• "You signed the exchange forms." A signature does not make a switch in your best interest.

• "The market caused the loss." The question is whether your loss came from a risk or cost that was hidden, misstated or never right for you in the first place.

Documents That Help

• The annuity contract, prospectus and any illustration

• Annuity exchange or replacement forms, if you switched annuities

• Annual statements and confirmations

• Account opening forms and risk profiles

• Emails, texts and your notes of calls with your financial advisor

Deadlines

Under FINRA Rule 12206, a claim cannot be brought in FINRA arbitration once six years have passed since the event that gave rise to it. Other legal deadlines can be much shorter, and when a deadline starts can be disputed. If you suspect a problem, talk to a lawyer promptly.

Why Investors Choose Daren A. Luma

Daren has 26 years of experience in litigation, arbitration and regulatory matters involving the financial industry. He worked for 10 years at one of the largest defense law firms in the world, representing financial firms in litigation, arbitration and regulatory matters, and before that served as in-house counsel at one of the largest brokerage firms. He has seen how brokerage firms review customer complaints and build their defenses, and he now uses that experience for investors. Since founding the firm in 2018, he has represented over 400 clients and recovered over $130mm for investment victims. Prior results do not guarantee a similar outcome. He personally handles each case from start to finish.

• Strong Reputation — Over 26 years of practice specialized in the financial industry. I’ve achieved successful results in a wide variety of legal forums. Since 2018, I have represented over 400 investment victims and successfully recovered over $130 million for them.

• Individualized Attention — At my firm, unlike some securities litigation firms, you can trust that your case will be handled from start to finish by me instead of being handed off to a lower-level associate without the requisite knowledge or experience.

• Strategic Counsel — With experience as in-house counsel within a large brokerage firm and 10 years with one of the largest (defense) law firms in the world, I offer clients a well-rounded perspective on their investment loss issue. From there, my firm develops a comprehensive plan to achieve the best possible outcome.

More on Complex Products

Annuities are one of several complex products we handle. See complex investment products for structured notes, private placements, leveraged ETFs and more, or read about structured note claims.