Some brokers have been steering elderly and vulnerable investors into buying inappropriate, expensive variable annuity policies, the Securities and Exchange Commission and NASD warned yesterday as they announced plans to tighten sales practices and require more disclosure about the policies' risks and fees.

The regulators reviewed sales practices at nearly 125 brokerage firms, large and small, and turned up a wide variety of abuses. They include brokers who advised clients to mortgage their homes to buy the policies, firms that improperly switched customers from one policy to another to generate additional commissions, and customers who were not told about high taxes and penalties on early withdrawals.

"We've seen a lot of sales to the elderly, and your money is tied up for so long that it can create real issues for people who need it for health care," said Mary Schapiro, vice chairman of NASD, the main self-regulatory body for brokers. "We want to get ahead of the issue."

Annuities are insurance-investment hybrids that pay either a fixed annual sum or a death benefit and invest part of the premiums in mutual funds. They can provide tax advantages, but they also charge high fees -- currently an average 2.22 percent a year compared with 1.45 percent for ordinary mutual funds, according to the fund research company Morningstar Inc. There are almost always substantial penalties for cashing in the investment portion too early. The policies also generate commissions of 5 percent or more for the brokers who sell them, raising a red flag for regulators concerned about improper sales.

"It's a product you should be really careful about. We've seen significant indications that, yes, there is a significant sales practice problem," said Lori A. Richards, who heads the SEC's Office of Compliance Inspections and Examinations. "We wanted to get out there and tell investors to be careful."

Assets in annuities, which are often used by investors saving for retirement, shot up 20 percent last year to $985 billion and have now hit $1.026 trillion. That climb has been accompanied by an equally dramatic increase in investor complaints and regulatory violations, according to the SEC and NASD.

NASD received 15,761 complaints about annuity and insurance products last year, up from 9,887 in 2000. Annuities and insurance products now generate more than 15 percent of all complaints, NASD said, and regulators there have brought more than 80 enforcement actions in the variable annuity area in the past two years. The largest alleges that Waddell & Reed Inc. improperly switched 6,700 customers among policies to generate $37 million in commissions. Waddell & Reed has denied wrongdoing.

New York Attorney General Eliot L. Spitzer, who last year brought the first cases involving improper trading in mutual funds, is also investigating variable annuities but has not yet brought any cases, his office said.

NASD, formerly known as the National Association of Securities Dealers, proposed several new rules yesterday that would require brokers to document why they are recommending each particular annuity to each particular customer and to tell investors upfront in "plain English" about the fees, surrender penalties and tax consequences of the policies they are recommending.

After a public comment period, the rules would go to the SEC for approval.

The organization already recommends that brokers follow those practices, but Schapiro said the "escalating customer complaints" had convinced her board "we need a rule instead of practice guidelines."

Insurance and brokerage industry groups praised the regulators for taking up the issue. James D. Spellman, spokesman for the Securities Industry Association, said, "Today's report underscores . . . the responsibility of broker-dealers to make the appropriate recommendations and to fully educate their clients."

And the National Association for Variable Annuities said in a statement that the vast majority of annuities sales are appropriate, adding that the "industry recognizes that variable annuities are relatively more complicated than some other investments and have put in place numerous safeguards to ensure that they are sold appropriately."