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Elizabeth Warren
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Figuring out what do with your 401(k) or IRA balance as you move into retirement is no easy feat. One of the ways people deal with the uncertainty is by getting advice from a professional, who can help to navigate an often baffling array of choices. But a new report from Sen. Elizabeth Warren, the Massachusetts Democrat who has been a fierce critic of Wall Street, suggests that many financial advisers and agents may have something on their minds besides what's best for you.

Specifically, a free trip to the Bahamas. Courtesy of the company whose annuity they are trying get you to buy for your retirement

If you don't know what an annuity is, you're not alone—they're complicated. Think of them as an insurance product that can also be used as an investment vehicle. There are tons of different types of annuities and some of them, like plain-vanilla immediate annuities, can make sense for retirees who want a source of guaranteed lifetime income. But many other annuities are complex investments with high fees, surrender charges if you need to tap the money early, and significant commissions for the agents who sell them. See this Money report for more on problems with annuities, and this story to learn about when immediate annuities can make sense.

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As John Waggoner has written for Money, seniors have long been prey to agents pushing inappropriate annuity strategies—a free lunch is often the bait. Warren says there's also some bait for the agents (besides the typical commissions.)

"Because of loopholes in the law, it is perfectly legal for some advisers to steer customers into complex financial products that will earn the highest rewards, perks and prizes for the advisers—even if they are bad options for their customers," says Warren's report, whose unsubtle title is "Villas, Castles, and Vacations: How Perks and Giveaways Create Conflicts of Interest in the Annuity Industry." There's a picture of a castle on the cover, and inside, images of the luxury beach resorts where insurers holds conference for top producers.

Non-cash incentives for selling annuities—Warren's report calls them kickbacks—are sort of an open secret. All but two of the 15 insurance companies Warren asked for information (AIG, Allianz, American Equity, Athene, AXA, Jackson National Life, Lincoln Financial, MetLife, Nationwide, New York Life, Pacific Life, Prudential, Riversource, TIAA-CREF, and TransAmerica) said they gave non-cash rewards and prizes to agents, either directly or through a third party, as incentives to sell their products. One said it was "common in the industry."

The report notes that many of trips were touted as sales meeting or conventions with a educational component, though one offered a "rewards" program that allowed agents to choose their own trips. To stay within industry rules, the report says, the insurers would offer incentives based on combined sales of any of a number of their products, not a specific contract.

Warren says consumers have the right to know when their adviser has incentives to push a particular company's products. There is some, but the report argues it is usually too general and may be buried deep within the investment's prospectus.

In addition to the insurance companies directly offering rewards to advisers, Warren's report calls out the practice of paying third-party marketing organizations to provide the perks.

The report emphasizes that the practices cited are currently legal. But Warren's attack on non-cash incentives for annuities are part of a broader argument in Washington about the standards people giving financial advice ought to be held to. Some advisers are simply held to a broad standard known as suitability, which means they just have to recommend something that works for client, but not necessarily the product that's most advantageous.

A recent White House report argued that conflicted advice costs retirement investors about $17 billion a year. Recently the Department of Labor has proposed that anyone selling advice for retirement accounts instead be held to what's known as the fiduciary standard, which means they have to put the client's best interest first.

That standard could potentially put a harsh spotlight on an adviser who sold an expensive annuity from a company that also happened to fly him to Aruba. Warren supports the fiduciary standard for all retirement advisers.

In October, however, the House of Representative passed a bill that would prevent the Department of Labor from enacting such a rule. The securities industry argues more rules would make it harder for advisers to work with less-wealthy investors.

When asked for a response to Warren's report, the Insured Retirement Institute, which represents insurers selling retirement products, referred to a written statement posted on its website. It said the report lacked "a full understanding of the current laws and regulations" and didn't touch on the benefits of annuities, which it said were very regulated already. The IRI did not rebut the claims of conflict of interest.

A similar statement was issued by the American Council of Life Insurers sad the report could worry retirees unnecessarily and "misrepresents the comprehensive regulatory framework that governs conduct in the sale of insurance products and protects consumer's interests."