Stock market returns without stock market risk, and we'll even throw in a first year bonus - that's the pitch anyway.

It sounds too good to be true, doesn't it? Well, there's a reason for that.

They are called Bonus Equity-Indexed Annuities (EIA) and recently were a topic of discussion at a Senate Committee on Aging hearing on protecting seniors from investment fraud.

Stock market returns without stock market risk, and we'll even throw in a first year bonus - that's the pitch anyway.

It sounds too good to be true, doesn't it? Well, there's a reason for that.

They are called Bonus Equity-Indexed Annuities (EIA) and recently were a topic of discussion at a Senate Committee on Aging hearing on protecting seniors from investment fraud.

According to the hearing, "Some financial services sales representatives are luring seniors to seminars with free meals, then pitching equity-indexed annuities as low-risk or no-risk products, without adequately explaining possible risks."

The National Association of Securities Dealers (NASD), in a separate action, issued an investor alert in 2005 on Equity-Indexed Annuities at http://www.nasd.com/web/idcplg?IdcService=SS_GET_PAGE&nodeId=1234

Our experience while counseling seniors has revealed that the many restrictions and complexities of these products are seldom explained by the agent who receives a relatively high commission to convince you to buy the annuity. In the cases we have reviewed, the agent actually makes a higher commission when selling an annuity with a bonus. That alone should be a warning flag. Why should the insurance company pay the agent more to sell you a bonus? Because in most cases it limits access to your money allowing the insurance company to make more on it.

As to the claimed stock market return, suffice it to say that they are limited by a cap in every case we have seen.

A recent EIA White Paper revealed that, over a long period of time involving both bull and bear markets in which the S&P 500 returned 8.65% annually, the average EIA returned about 3.5% annually - hardly stock market returns.

WHAT TO DO:

If you have been sold an EIA or Bonus EIA, we can help. Call or email us for actions you may want to consider. It may not be too late.

If you are considering an EIA, ask for the agent's recommendation in writing mentioning both the pros and cons, and have the agent date and sign it. Then take it to an attorney or accountant not working for the agent for a second opinion. Also, consider running it by us for advice.