Variable And Fixed Annuities

Annuities are investment plans where the investor pays scheduled premiums for a certain amount of time, or a lump sump premium, and then receives annual sums–typically for the rest of their lives. The two main types of annuities are fixed annuities and variable annuities. Fixed annuities are very straightforward. The investor pays a certain amount, and then receives a certain amount in return in distributions. Variable annuities, on the other hand, can be riskier. The premiums that an individual pays into a fixed annuity are invested into the market. The amount that the investor receives during retirement is dependent on how the investments performed in the equities market.

Are They Liquid?

Annuities by nature are not designed to be liquid investments. They are meant to be long term investments. Most annuities come with a 6-8 year surrender period. What this means is that if an individual withdraws funds from their annuity within this time period of purchasing the annuity, then it comes with a hefty surrender charge. Because of this, annuities should only be recommended to investors who believe they can go long periods without liquidating assets.

Class L Annuities

One type of variable annuity, known as a Class L annuity, has recently been criticized for its deceptive nature. Class L annuities seem alluring to customers because they are far more liquid than other types of annuities. Unlike the 6-8 year surrender period of other annuities, Class L annuities only come with a 3-4 year period. The trade off is that these Class L annuities come with much higher fees than other annuities. Essentially, investors are paying more for the liquidity feature of these annuities.

The problem with this is that annuities do not need to be liquid. They are designed to be long term investments that pay customers annual sums. Investors who are looking for liquid investments should look elsewhere in the market. Customers are paying higher fees for a feature that goes against what annuities were designed for in the first place. This misinformation often causes investors looking for liquid investments to purchase these products. This can still result in significant losses due to upfront fees and surrender charges.

Multiple securities firms have been sanctioned for alleged misdealings related to Class L annuities. Ameritas Investment Corp. was fined $180,000, Hornor, Townsend & Kent was fined $275,000, and Next Financial Group was fined $750,000. These fines were issued by FINRA in connection to their sales of Class L annuities.

Oakes & Fosher Can Help

Oakes & Fosher dedicates its entire legal practice to helping investors across the nation. If you, or someone you know, have lost money investing in a Class L annuity, please contact Oakes & Fosher for a free and private consultation. Oakes & Fosher handles cases on a contingency basis, which means there are no fees charged unless we collect for you.