It happened again. A client of ours was duped into buying an investment that cost him thousands of dollars in both outrageous fees and investment returns. The investment? Annuities.

Unfortunately he’s not the only one. We have many clients in similar positions. Most don’t even know what’s happening until we educate them about this type of investment.

Now don’t get us wrong, not all annuities are horrible. Some are okay, not great, but okay. Others are built and sold to only benefit the insurance company that sells them, not the client.

Let’s look at an example. On March 10, 2010, a client of ours bought an annuity for $218,876 that was built for growth. Five plus years later on December 31, 2015, the annuity was worth $306,212. Our client was pretty happy when we first talked to him. He thought it had “done really well.”

Our response? Let’s look at the numbers.

In the past 5.83 years, he made 39% in a “growth” annuity, totaling $87,336. The minimum fee was 2%. Most annuities charge even higher fees, but we’ll put it on the low end for this example. Keep in mind, though, these high fees are far more than what most investment advisors charge, including us.

During this same time frame, the stock market (measured by the S&P 500® Index) was up 101%. If our client invested directly into this index, he would’ve profited $221,279.

Further, if our client had invested directly into Treasury bonds (a non-growth investment), he would’ve made 61%, or $133,615.

Starting ValueEnding ValueReturn$ GainClients Annuity$218,876$306,21239%$87,336Market (S&P 500)*$218,876$440,155101%$221,279Treasury Bonds**$218,876$352,49161%$133,615

*The S&P 500 Index is measured by the State Street Global S&P 500 ETF, SPY.

**Treasury bonds are measured by the iShares 20-Year Treasury Bond ETF, TLT.

When we showed our client our findings, he decided he wanted out of the annuity and wanted to invest his money with us. We agreed that this was the right decision for him and his personal goals (note that sometimes it’s not), so we continued researching how our client could cancel his contract.

We discovered that, to cancel his annuity contract and invest it elsewhere, there were of course more fees. In this situation our client was charged a Contingent Deferred Sales Charge (CDSC). Clients are charged this fee when they cancel a contract within a certain time frame. For example, if our client cancelled the contract after one year, he’d be charged a fee of 8%. After two years, 7%, three years, 6%, four years, 5%, and so on until year eight, in which the fee is gone.

So, for our client to get out of his contract, he had to pay $8,400 in fees for an underperforming investment (remember this was growth) while also being charged double the fees most advisors charge.

How is this type of investment good for individual investors? How does it help grow wealth?

In the world of annuities remember, if it sounds too good to be true, it likely is—again, buyer beware.