Thomas and Rosemary Welsh knew nothing about annuities and would never have invested their retirement funds in them had their financial adviser not recommended it.

“He told us we would make more money, have better interest rates and not lose money,” said Ms. Welsh, 78. “He was the financial professional and our friend, and we followed his advice.”

That was a mistake.

The Bethel Park residents bought two annuities in the early 2000s for about $130,000. Shortly before the annuities would have matured, their adviser convinced them on three occasions to replace those annuities with other annuities — most recently last year. That tied up their money for several more years and ended up costing them more than $19,000 in surrender charges.

Each time they sold an annuity and bought another, it incurred another commission.

As with most annuities, those owned by the Welshes also had what are called surrender charges — penalties for withdrawing some or all of the money during a specified period of time, usually five to 10 years after the annuity is bought.

“He never explained to us the penalties and fees we would have to pay,” Ms. Welsh said, adding that her husband, Thomas, 80, used to play basketball with their adviser. “We lost a lot of money on those transactions and he made a lot of money in commissions.”

The Welshes aren’t alone. The agents followed the same practices with dozens of others, according to the state Insurance Department.

The annuity market has been gaining momentum in recent months due to interest rates climbing higher and annuity payouts rising, too.

Annuities are contracts between individuals and an insurance company that provide the purchaser with a steady stream of income during retirement. They often play a role in replacing or supplementing other fixed income streams, such as Social Security and pensions.

But as more retirees turn to annuities, the incidents of fraud also have increased. The Pennsylvania Insurance Department has received 143 complaints about annuities so far this year, mainly related to a practice called churning. Last year, the department received 158 complaints between January and November.

Churning occurs when insurance agents convince annuity owners to trade one policy for another, causing the investor to lose money through additional commissions, additional premiums and lost value due to surrender charges.

A Pennsylvania law intended to protect people who invest in annuities will go into effect Dec. 25. The new law adds consumer protections to annuity sales by requiring an agent, or an insurance company if it sells directly to a consumer, to gather more information to determine whether an annuity is suitable for the consumer.

Under the new law, any agent or insurance company selling an annuity must inform consumers of any surrender charges they face if replacing an existing annuity; any investment advisory fees, tax penalties or other costs; and any losses of benefits or changes to riders by replacing the existing annuity.

The state can impose penalties and sanctions on agents and insurance companies for inappropriate sales practices or for failing to make sure the seller obtained all of the financial information needed to determine whether the specific annuity is suitable for the consumer.

“This new law won’t stop every scam artist, but it gives consumers much stronger protections and gives my department the ability to take stronger action against those who break the law,” state Insurance Commissioner Jessica Altman said.

”Annuities can be an important part of an individual’s retirement financial plan, but it’s vital the annuity be right for the person buying it.”

Filling in for pensions

Annuities come in all shapes and sizes — fixed rate, variable rate, immediate annuities and deferred income annuities. But the industry is for the most part based on people trading large sums of nonrefundable cash immediately or over an extended period of time in exchange for the promise of monthly payments for the rest of their lives or for a specified period of time.

The investments have moved into the mainstream as more retirement savers without traditional pensions look for ways to make their savings last.

According to a report released last month by Limra, a Windsor, Conn.-based insurance research company, rising interest rates have pushed sales of fixed-index annuities to record levels because as rates rise, people who buy annuities expect a higher monthly return.

Fixed income annuity sales for the first three quarters of this year were $50.1 billion, 22 percent higher than the first three quarters of 2017. Variable annuity sales were $75.4 billion, up 4 percent compared with the same time frame in 2017.

Pittsburgh financial adviser Robert Fragasso said one of the big problems, especially variable rate annuities, is that brokers have an extra incentive to sell them due to the high front-end commissions.

“The majority of annuity providers are honest and trying to do the right job for their clients,” said Mr. Fragasso, CEO of Fragasso Financial Advisors, Downtown. “Unfortunately, a minority of insurance salespeople are more motivated by the front-end commission than they are meeting the legitimate financial needs of their clients.

“Sometimes regulation becomes overdone,” Mr. Fragasso said. “But strong enforcement is necessary here.”

A lot of commissions

The Welshes were not the only victims.

Donald Gilberg and his wife, Nicole, working together, cost a total of 42 consumers a combined $159,000 in surrender charges and making more than $136,000 in commissions on inappropriate sales, according to the state Insurance Department.

The Gilbergs worked for three insurance companies during the time frame in question — Bankers Life and Casualty Co., Oxford Life Insurance Co. and Sentinel Security Life.

The Insurance Department revoked both their insurance licenses in June, recovered the money that consumers lost from one of two insurers for whom the agents sold annuities, and is working on restitution from the other insurer.

The Gilbergs were not asked to make restitution and they did not fight the license revocation, signing consent orders detailing the problems found by the state insurance department.

A spokesman for the department said the case came to it through a referral from the state Attorney General’s Office.

“The attornery general received a complaint, referred it to us and we began our investigation which found violations of insurance law,” said Ronald Ruman, director of communications for the insurance gepartment.

The department found that the couple’s victims were between ages 54 and 81 at the time of the transfers.

Waiting for reimbursement

The Welshes already have received a reimbursement check for $3,700 from Oxford Life Insurance Co. They are still hoping to receive another $15,000 reimbursement from Sentinel Security Life, which is where their money was last transferred.

Thomas Welsh was a courier for DHL Airways for the last 15 years of his working career. He had placed all of his retirement savings — about $130,000 — into a mutual fund account at Fidelity. He took all the money and bought two annuities in 2001 on the advice of Mr. Gilberg.

Rosemary Welsh worked 20 years at U.S. Steel as an administrative assistant. She retired with a 401(k), which she rolled into a Fidelity IRA when she retired. She receives a pension, a Social Security check and a $400 monthly distribution from her retirement account. She never bought any annuities with her retirement funds.

They lost a chunk of their nest egg mainly because none of the annuities stayed invested long enough to mature. However, the Welshes, who have been married 52 years, are fortunate to have paid off their mortgage and have no personal debt.

“We learned the hard way to be very careful when buying annuities,” Ms. Welsh said.