Stock Market Losses
Practice Area Attorneys
Annuities Resources
Variable Annuities
Contact us today for a free legal consultation about your variable annuities case.
Variable annuities are sold to investors with promises of tax deferral until withdrawal and "guarantees" of principal. Variable annuities are normally purchased with a large lump-sum payment and are combinations of an insurance policy and mutual funds. As opposed to being a fixed or constant rate of return, there are options for several "variables" which are similar to mutual funds. Since the sale of variable annuities generally yields one of the highest commissions a broker or insurance salesman can earn, they are often sold to unsuspecting investors.
Unfortunately, in many instances, those unsuspecting investors are those approaching retirement or in retirement. In order to generate these high commissions, some brokers and insurance salesmen have
misrepresented the basic concepts concerning variable annuities and have not been truthful about the steep penalties for early withdrawal. The high sales commission, substantial fees earned by the salesman and the inability to withdraw or lack of liquidity, without penalty, are
significant drawbacks to these investments. Many investors are told
that the principal is "guaranteed". However, the guarantee only occurs
in the event of death and the principal is returned pursuant to the life
insurance contract provisions. If the purchaser is over age 70, has a
need for immediate income and does not have any need for insurance, the variable annuity will seldom be suitable.
The NASD has created a specific variable annuity web page to provide information for investors and brokers about the problems involved in the sale of variable annuities. This home page contains SEC and NASD news releases, speeches, as well as notice to NASD members, the brokerage firms.
The NASD itself has recognized the problem of over-zealous sale of variable annuities to perform for whom they are not suitable. As a result, the NASD has issued repeated warnings to the brokerage firms to make certain that the variable annuity is suitable for a specific investor before selling it. The NASD has also recently imposed stricter rules on brokers for selling variable annuities as well as branch managers and others responsible for supervising those salespersons.
The NASD has also published several "investor alerts" which warn
investors about the risks in investing in variable annuities. The first
paragraph of this investor alert is particularly telling:
The marketing efforts used by some variable annuity sellers deserve scrutiny - especially when seniors are the targeted investors. Sales pitches for these products might attempt to scare or confuse investors. One scare tactic used with seniors is to claim that a variable annuity will protect them from lawsuits or seizures of their assets. Many such claims are not based on facts, but nevertheless help land a sale.
Another tactic utilized by salespersons is to convince an investor who already owns a variable annuity to switch or exchange that variable annuity for another variable annuity. Often the switch or exchange just generates a heft commission for the salesperson and provides no tangible benefit for the investor. For guidelines on the factors to consider when a recommendation to switch or exchange a variable annuity is made, see the NASD Investor Alert - NASD: Should you exchange your variable annuity.
The warnings have not only come from the NASD. The Securities and Exchange Commission (SEC) has also warned consumers about the purchase of variable annuities.
Lastly, the SEC and the NASD have issued a joint report on their examination regarding broker-dealer sale of variable insurance products. It was noted in the report that the high commissions helped drive sales of the products. The SEC and NASD also noted that variable insurance products have higher fees and surrender charges than mutual funds that provide no insurance features. The high fees and surrender charges combined with other factors made variable insurance products inappropriate for many investors. The typical complaints that the NASD and the SEC received were that the customer was sold a variable product without fully understanding the product and expressed concerns that the product was not appropriate for them given their specific situation in life and investment objectives. To review the joint SEC-NASD report go to www.sec.gov/news/studies/secnasdvip.htm.
If you or someone you know has lost money as a result of the purchase, switch or exchange of a variable annuity, our experienced Philadelphia variable annuity fraud lawyers can assist you in determining whether or not you have a valid claim. Click here to contact us for a free case evaluation.
