Update - I went to the appointment with my friend and her annuity advisor today. I was pleasantly surprised by two things - the advisor was very knowledgeable about how the product worked and answered all of my questions, and she is a fiduciary financial advisor who also handles other types of investment accounts. This made me feel a bit better. She claims her fees for selling my friend this product are 0.65%/year, while she charges 1%/year for asset management if my friend had instead just hired her to manage a portfolio.
I had mentioned before that I didn't really understand the downside protection seeing the negative returns but the limited positive upside. However, what I did not understand until today is that although her annual statements show negative returns in percentage terms, in actuality her account dollar value was not reduced for the negative returns; instead she just earned zero while the market actually gained, in some cases significantly. I also got a better understanding of the guaranteed minimum value - it is 85% of her principal less withdrawals, so her maximum loss is 15%.
The fact remains that there is a pretty low cap on returns so it is very possible she will earn somewhere between zero and 4% over time on this investment. That has definitely been the case the last 5 years - her IRR is 3.39% while the market returns have been MUCH higher. Personally, this annuity would not be something I'd consider. However for a person with relatively low risk tolerance and an age of 74, I suppose there are worse options out there. She is sourcing her RMD's from this account, so part of the reason she is risk-averse within this account is that she doesn't want to have to withdraw from a declining account.
Bottom line, she decided to stick with it for another year and see how it goes. The annuity rep recommended continuing with the "monthly sum" method. In good years, her capped return under this method will significantly exceed the annual method. In bad years, she won't make much either way.
Thanks again to all on this forum who helped me better understand this type of "investment." I still think my friend would be better off in a balanced fund or a mix of two ETF's (stock/fixed income); however the volatility would be greater and only she can decide if she is willing to have more volatility to get greater returns.
One comment my friend made to me that many on this forum can probably relate to is that she feels she has everything she needs and so taking more risk to make more money isn't really necessary fo her. Very different than my attitude - with inflation and other uncertainties, I'd rather take more risk for a better long-term outcome - but then again, I'm 16 years younger and have higher risk tolerance, obviously.