Replacement is not necessarily considered twisting or churning. Depending on the circumstances, a replacement product may be in the best interest of a client. Financial advisers must disclose all of the necessary facts to determine whether a replacement product is justifiably suitable. For annuities, or any other life insurance product, disclosure includes accurate comparisons of the values, provisions, interest rates, surrender charges, fees and expenses, settlement options, and death benefits between the client's existing product and the proposed product. When determining replacement suitability, consider:

• The client's investment objectives and risk tolerance;
• Comparisons of the minimum guaranteed rate of return;
• The degree of liquidity available under the proposed product;
• Whether the benefit amount can be increased for the same or similar premium;
• Whether the accumulation value will increase for the same or similar premium; and
• The potential tax treatment of the proposed surrender or exchange.

CAUTION: Under insurance law in most states, it is a violation to replace an annuity, for which a surrender charge is incurred, without providing a substantial financial benefit over the life of the replacement annuity.

Here's what you can do to avoid problems:

1. Carefully assess the potential benefit of the proposed product when comparing it to an existing one. If unsure, get a second opinion from a reputable source.
2. Keep detailed records on all replacement recommendations. To assist you, a replacement document form is available at www.ethicscheck.com.

Source: Steven McCarty, Director of the National Ethics Bureau (NEB), an independent organization of approved financial advisers, and ethicscheck.com, a free source for the public to investigate the background of any financial adviser.