JEFF ROBERSON/AJC staff Retiree William Stapp has more time for grandchildren but less money to spend on them.

William Stapp, 58, of Overland Park, Kan., placed his $433,000 Hallmark Cards Inc. pension in a variable annuity in 2000. That investment is now worth $190,000.

To be sure, many people have lost money in the stock market in the past two years. Insurance industry officials say the market's collapse is the real culprit here.

But regulators say many aggressive insurance agents and brokers oversold thousands of people on the hazy virtues of variable annuities, often described as mutual funds wrapped in an insurance policy. They say consumers were not warned of risks or told that the complex contracts carry large commissions, hidden fees and steep surrender charges if money is withdrawn too soon.

Hundreds of thousands of variable annuities were sold monthly in the stock market's heyday, experts say. From 1995 to 2000, annual sales of variable annuities ballooned from $49.5 billion to $137.2 billion.

Now hundreds of millions of retirement dollars have vaporized.

"Just losing money doesn't mean there was wrongdoing," said Lynn Garrison, an independent financial planner with Focus Financial Group of Overland Park. "But there are bad things going on out there."

The Securities and Exchange Commission says variable-annuity complaints far outpace all other securities complaints. Most complaints allege the investments were unsuitable for the financial conditions of the buyers.

Susan Wyderko, director of the commission's investor education division, said her agency last year received 460 consumer variable-annuity complaints, a 45 percent increase. She said the rise reflected only a small fraction of complaints nationwide and pointed to "developing problems in the securities area."

She said senior citizens who thought their investments were guaranteed were "shocked to learn that the 'guarantee' feature of a variable annuity requires them to die."

Some regulators think sweeping enforcement changes are needed.

Not everyone agrees. "It gets to the point of regulatory overkill," argued Carl Wilkerson, chief counsel for securities and litigation for the American Council of Life Insurers in Washington. "There isn't any lack of consumer protection. And state and federal laws already provide significant tools for regulators to prosecute wrongdoing in the market."

Annuities of various types are sold by insurance companies through brokers and agents. When you buy an annuity, the insurer agrees to make periodic payments to you in the near or distant future, depending on the contract, and charges fees for managing your money.

In a variable annuity, the insurer places your money in its own subaccounts that invest in mutual funds.

Variable annuities have several attractive features. Investment returns are tax-deferred, and money can be moved from one subaccount to another without triggering tax consequences. They also have a death benefit some investors may want. But high fees and surrender charges for early withdrawals can nullify their advantages.

And because individual retirement accounts and 401(k) plans are also tax-deferred, no tax advantage is gained from taking money out of your plan at work and rolling it into a variable annuity. Regulators say variable annuities make sense only for consumers willing to invest for 10 years or longer or who have maxed out on their other tax shelters.

That makes them less suitable for retirees who don't want a death benefit and cannot afford to lock up their money for a long time. Regulators say abuse occurs when retirees are misled with claims of guaranteed returns when, in fact, returns are vulnerable to stock market fluctuations.

The National Association of Securities Dealers is cracking down on big brokerage firms. It fined American Express Financial Advisors $350,000 for improper sales of variable annuities, including misrepresenting the tax benefits. The company does not admit any wrongdoing.

Some consumers have hired lawyers to marshal their complaints.

Stapp, a former Hallmark human resources employee, hired Kansas City area securities lawyer Diane Nygaard to file a formal complaint against his broker with the securities dealers association.

Stapp said his broker induced him to take early retirement in 2000 from Hallmark, guaranteeing him that he could receive $2,800 of monthly income, without reducing his principal, until he was ready for Social Security.

Stapp said his broker placed his money in a variable annuity whose subaccounts were heavily exposed to risky growth stocks.

Only later, after he began losing $20,000 a month, did Stapp learn that the 8 percent annual returns he was promised for retirement were guaranteed only if he died, under the death benefit.

The Securities and Exchange Commission and investment experts offer these tips:

• Be sure of your long-term goals and how long you are willing to tie up your money without paying surrender charges.

• Ask your agent about all the fees and expenses the variable annuity charges. Make clear to your agent or broker exactly what your investment priorities and limits are.

• If an agent or broker says you will get a guaranteed return, get in writing exactly what that means. If your agent or broker wants to move you from one annuity to another, it may only be because he would be paid another commission.

• Ask whether your financial planner charges a fee or is paid a commission. A rule of thumb is that the bigger the commission, the worse the product.