Updated: August 15, 2026

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Most annuity sales in the United States are honest. A minority are not. When a licensed agent moves an older client out of a serviceable policy into a new one, mainly to earn another commission, insurance regulators call it twisting or churning. The mechanics are technical, the paperwork is real, and the loss is measured in years of penalty exposure and lost interest.

This page explains what those swaps look like, why the surrender-charge clock matters, and where to file a complaint if it happens to you or a parent.

Table of contents show

If this is happening to you right now

Stop and do three things before you sign a replacement form or wire any money for a new annuity. Take the pressure off the room first, then get the paperwork in front of a second reader.

Ask for the swap in writing. Insist on a signed illustration for both the current and the proposed policy, including the surrender-charge schedule, the new commission, and every rider fee.
Say no to same-day signatures. A legitimate replacement does not need a signature today. Most states give a 10 to 30 day free-look period after issue, but the smart move is to slow the sale before it is issued.
Call your state insurance department. Every state licenses annuity producers and enforces the replacement rules. The phone number is on the state’s official insurance site, linked in Sources below.
File later, even if you sign. The free-look period lets you cancel most contracts for a full refund. After that, a complaint to the state insurance commissioner can still trigger a review and, in some cases, restitution.

If money has already moved and you believe you were misled, save every document, request a full policy file from the insurer, and file with your state insurance commissioner and the FTC. Reporting paths are listed at the bottom of this page.

What twisting and churning mean, mechanically

The two terms describe the same underlying abuse from different angles. Both center on unnecessary replacement of an in-force policy, paid for by the client and profitable for the seller.

Twisting is the misrepresentation-driven version. An agent oversells the new contract, understates the cost of leaving the old one, or hides material differences, and the client agrees to a swap they would refuse if fully informed.
Churning is the volume-driven version. The same agent moves the same client through a series of replacements over months or years, each triggering a new commission and a new surrender schedule, until the account has been rebuilt several times over.

Both patterns are addressed by state insurance replacement regulations and by the NAIC Suitability and Best Interest in Annuity Transactions Model Regulation (Model 275). FINRA Rule 2330 covers deferred variable annuities on the securities side. Sources are linked below.

The surrender-charge reset, with raw dollars

Bar chart of a typical annuity surrender charge schedule declining from 8 percent in year one to zero in year nine, illustrating the churn and twisting incentive on early transfers. — Source: Article-cited typical annuity surrender schedule (8 percent year one, declining one percentage point per year to 0 percent in year nine).

Most fixed and variable annuities carry a surrender-charge schedule, sometimes called a contingent deferred sales charge. It is the fee the insurer keeps if you cash out or transfer before the schedule runs off, typically over seven to ten years.

A common schedule looks like this: 8% in year one, 7% in year two, then declining one point per year to 0% in year nine. The number you see quoted at the point of sale is usually only the first-year rate.

Worked example on a $200,000 policy

Assume a 68-year-old client bought a $200,000 deferred fixed annuity in year one of a nine-year surrender schedule. Six years in, the surrender charge has dropped to about 3%, or roughly $6,000 on the current account value.

A salesperson now proposes a new annuity with a “better income rider” and a “guaranteed bonus”. The swap uses a Section 1035 exchange (Internal Revenue Code Section 1035) to move the balance tax-free, so no income tax is due today. That fact alone is often used to close the sale.

What the illustration usually does not spotlight:

The old contract still owes roughly $6,000 in surrender charges, deducted from the transferred balance.
The new contract restarts a fresh eight or nine-year surrender schedule at 8% year one.
A new commission, often 5% to 7% of the transferred principal, is paid to the agent from the insurer’s pocket. The client sees no line item, but that commission is priced into the new contract’s caps, spreads, and fees.
The advertised “bonus” is typically paid back through lower crediting rates or a longer surrender schedule.

Net effect on the 68-year-old: about $6,000 of realized surrender cost, plus another five to seven years locked in with penalty exposure at ages 74 and older. If the same client is moved again in year three of the new policy, another surrender charge and another commission cycle begin. That is the churning pattern in one paragraph.

The free-meal seminar pipeline

Both federal and state regulators have documented a repeating pattern that funnels retirees into replacement annuities. It usually starts with an invitation to a free lunch or dinner seminar at a hotel or steakhouse, marketed to attendees aged 60 and up.

The seminar is framed as educational. Attendees hear a talk about estate planning, market volatility, or Social Security timing. At the end, everyone is offered a free follow-up consultation at the presenter’s office. The consultation is where the sales pitch begins, and the pitched product is almost always a specific annuity.

Regulators have flagged this pipeline for two decades. A joint SEC, NASAA, and FINRA examination sweep in the mid-2000s reviewed free-lunch seminars nationwide and found high rates of unsuitable recommendations, unregistered securities, and outright fraud. State insurance departments continue to publish warnings about the same pattern today, especially for indexed and variable annuity replacements marketed to retirees.

Suitability and best-interest rules that already protect you

The seller has legal duties, and those duties are written down. Knowing which duty applies to which product makes a complaint more effective.

State insurance replacement rules. Every state requires a written replacement notice when an in-force annuity is being swapped. The producer must give the client and the existing insurer the notice, disclose replacement details, and document that the swap serves the client’s interest.
NAIC Model 275 (Suitability and Best Interest in Annuity Transactions). Most states have adopted the revised model, which imposes a best-interest standard on annuity recommendations, including the duty to have a reasonable basis that the swap is not just any option but the right one for that client.
FINRA Rule 2330 (deferred variable annuities). Sales of variable annuities by broker-dealers must clear a documented suitability review, and exchanges from one variable annuity to another require a specific written analysis showing that the client’s benefits outweigh the costs.
FINRA Rule 2111 (general suitability). Any recommendation by a broker-dealer must be suitable for the customer’s investment profile, including age, liquidity needs, and time horizon.

Federal securities law layers on top. For variable annuities, which are registered securities, the SEC has published investor guidance describing surrender charges, mortality and expense fees, and the specific risks of a 1035 exchange between two similar contracts.

Questions that expose a bad swap

You do not need a securities license to run this checklist. Every one of these questions has a factual answer that the agent is required to put in writing under state replacement rules and, where applicable, FINRA Rule 2330.

What surrender charge do I pay on the old contract to fund this swap? A dollar figure, not a percentage, on today’s balance.
What is the surrender schedule on the new contract, year by year? Ask for all years, not just year one.
What commission do you personally earn on this sale, and who else is paid? Ask for the total, including overrides and marketing bonuses.
How does the crediting rate, cap, or spread on the new contract compare to the old one over the last five years of actual performance?
What benefit in the new contract do I not already have in the current one? Ride the answer to a specific dollar figure at a specific age.
What is the free-look period on the new contract, and how do I invoke it? Get the phone number and the address for cancellation in writing.
Can I see the state replacement notice you are required to file? That form is mandatory. A hesitant answer here is a red flag.

If any answer is vague, requires “trust me”, or is delivered orally with no paper trail, do not sign. The paperwork is not optional and the numbers are not confidential to you: they describe the product you are being sold.

Where annuities can be legitimate

None of the above means annuities are inherently bad. A single-premium immediate annuity funded at retirement can lock in lifetime income and remove sequence-of-returns risk. A qualified longevity annuity contract inside an IRA can shift a portion of assets to a later start date and reduce required minimum distribution pressure.

The abuse pattern is not about the product category, it is about the swap. A client who bought a suitable annuity and later gets moved into a slightly different one, restarting the clock, is the target profile that state insurance departments and FINRA have chased for years.

For a broader look at how annuities compare to precious metals inside a retirement plan, see the OPRS comparison on gold IRA versus annuity as retirement income. For the pension-decision version of the same question, see the walkthrough on a lump-sum pension versus an annuity or a gold IRA rollover.

Where to file a complaint

File in parallel, not in sequence. Each agency has its own remit and its own clock. Duplicate filings do not hurt your case.

State insurance commissioner (primary path for all annuity abuse). Every state has a consumer complaint intake. The state examiner can request the producer’s files, the insurer’s replacement notice, and the suitability worksheet. Find your state on the NAIC directory linked below.
FINRA (variable annuities sold through broker-dealers). If the seller was a registered representative and the product was a variable annuity, FINRA has jurisdiction. Complaints route to the firm’s compliance department and to enforcement.
SEC Office of Investor Education and Advocacy. Registered variable annuities also fall under federal securities law. The SEC accepts tips, complaints, and referrals at its TCR intake.
State securities regulator. Contact your state securities division through the North American Securities Administrators Association directory. Some states pursue annuity replacement abuse through securities enforcement in parallel with insurance.
FTC Consumer Sentinel. File at reportfraud.ftc.gov. The FTC does not adjudicate individual insurance disputes, but the Sentinel database is shared with state AGs and criminal enforcers.
State attorney general. Elder financial exploitation is a state crime in every jurisdiction, and most state AGs have a dedicated intake for it.
Adult Protective Services. If the victim is a parent or a family member unable to advocate for themselves, APS in the county where they live can investigate and, when needed, coordinate with law enforcement.

If you are worried about a parent

Adult children often spot the pattern first. A parent mentions a new “financial advisor” from a lunch seminar, or a large check moves out of a longstanding account. Approach the conversation without judgment: the sales pitch was designed by professionals, and refusing it required information the parent was never given.

Ask to see the paperwork together. Compare the surrender schedules. Ask the parent to authorize you (in writing to the insurer) to speak on the account for the length of a review. The Eldercare Locator run by the federal Administration for Community Living can point to the county APS office and the state Long-Term Care Ombudsman.

Reporting paths, at a glance

Report fraud to the FTC: reportfraud.ftc.gov
Report to the FBI Internet Crime Complaint Center: ic3.gov
Find your state insurance department: NAIC state directory (linked below)
Find your state securities regulator: NASAA directory (linked below)
Find Adult Protective Services and elder care support: Eldercare Locator (linked below)
AARP Fraud Watch Helpline: 1-877-908-3360

Frequently asked questions

Is a 1035 exchange automatically suspicious?

No. Section 1035 is a legitimate tax provision that lets a policyholder move between similar contracts without triggering income tax. Its misuse is what creates the abuse: pairing the tax-free move with a fresh surrender schedule and a new commission that serve the seller more than the client.

Can I cancel a new annuity if I already signed?

Usually yes, during the state-mandated free-look period. Most states allow 10 to 30 days from delivery of the policy to cancel for a full refund. The exact number is on the first page of the contract. Send the cancellation in writing by certified mail and keep the receipt.

The agent said they are a “fiduciary”. Does that stop churning?

Not always. “Fiduciary” is a legally loaded word, and the standard that applies depends on the license and the product. Ask in writing which regulator the agent answers to on this specific sale: state insurance department, FINRA, SEC, or all three. Any hesitation is a signal.

Does the NAIC best-interest standard apply in my state?

By the end of 2024, a large majority of states had adopted the revised NAIC Suitability and Best Interest in Annuity Transactions Model Regulation. The exact status changes over time. The NAIC insurance-topics page on annuities carries the current adoption map, and your state insurance department can confirm the version in force locally.

What if the salesperson was recommended by a friend at church?

Affinity is a known pressure vector, not a safety signal. Regulators, including the SEC through investor.gov, warn that shared community, faith, or veteran identity is one of the recurring setups for annuity and investment fraud aimed at older savers. Apply the same paperwork standard you would to a cold call.

Do I need a lawyer to complain to the state insurance department?

No. State insurance departments accept complaints directly from consumers. A lawyer becomes valuable if there is a large loss, if the seller is refusing to produce records, or if you are considering civil litigation or an arbitration claim against the broker-dealer.

Annuity Sales Abuse: Twisting, Churning and Unsuitable Swaps