Benefits of Variable Annuities
Individuals looking for investment opportunities like variable annuities for their three main benefits. They include:
Periodic Payments
Periodic payments refer to the money you receive from an investment over time. You invest a sum of money with a company. In return, the company agrees to pay you back in small, regular amounts.
These payments can be set up to last for your entire life or even be passed on to a person you choose, such as a family member after you are no longer around. This setup ensures a steady flow of income, either for you or for your loved ones, based on the initial investment you made.
Death Benefit
If something happens to you before the company starts giving you your money back, there’s a safety net. This safety net is called a death benefit. It means that the person you choose (your beneficiary) will still get money.
At the very least, they’ll receive what you had put in. It’s a way to make sure your investment doesn’t go to waste and helps take care of your loved ones.
Tax-Deferral
Lastly, there’s a feature called tax-deferment. Normally, when you make money from an investment, you have to pay some of it as taxes right away. But with tax-deferment, you don’t have to pay taxes on this money right now. You only pay taxes when you actually get the money in your hand.
This can be handy because it means you could end up with more money growing over time, and you only share a piece with the government when you’re ready to use it.
Disadvantages of Variable Annuities
As with any investment option, there are risks involved. Variable annuities are affected by the ebb and flow of the current market. If the market is doing well, so is the investment, and vice versa.
Additionally, variable annuities are illiquid. This means that neither the investor nor their beneficiary can touch the funds before all payments are made. If, for any reason, they were to do so before the policy’s term limit, they would have to pay a 15-20% surrender charge.
Variable Annuity Fraud
Variable annuity fraud is committed through a variety of ways. Many brokers and firms do not understand the complexities of the investment themselves. In many situations, they blindly recommend the policy or misrepresent the facts.
Often, variable annuities are sold by brokers and their firms due to the significant fees that are associated with them. For example, they include an unseen commission of up to 10% that is ultimately paid for by the investor through either annual fees or surrender charges.
Two organizations, the Financial Industry Regulatory Association (FINRA) and the Securities and Exchange Commission (SEC), have issued warnings regarding the negative consequences of variable annuities. However, fraud still occurs.
Below are three commonly seen ways that brokers can commit variable annuity fraud against you, the investor:
- Churning: Also known as excessive trading, churning occurs when a broker managing your variable annuity sells you new investments or replacements to create extra commissions for both themselves and their firm. Often, they provide little to no explanation for this action.
- Unsuitability: Variable annuities are not for everyone. For instance, they are unsuitable for elderly investors due to their high surrender charges. They will not be able to use the money for retirement. If a broker were to recommend a variable annuity to you, an unsuitable investor, they have committed fraud.
- Switching: A broker may advise a switch from an existing investment to a variable annuity without an explanation as to why. Additionally, they may provide suggestions that hurt your bottom line.
Why You Need a Variable Annuity Fraud Attorney
Before a broker makes any changes to your investment strategy, they must look at numerous factors in your portfolio:
- Financial situation
- Age
- Investment experience
- Existing assets
- Risk tolerance
However, in many cases, brokers and their firms fail to do so to increase their earnings.
If you have a variable annuity and your broker isn’t giving you sufficient answers about the details of the account, a broker fraud lawyer can help. Attorneys at Oakes & Fosher understand the stressful situation you face when you put your faith (and investment) in someone who sets up high expectations on your return, only to find that they may have taken advantage of it.
As variable annuities themselves are complex, so too can the case be against the broker and their firm. You need to have a lawyer representing you with experience in variable annuity fraud. They know the facts and present the evidence, so you don’t have to.
Since 2007, Oakes and Fosher has won more cases on behalf of individual investors tried before full FINRA panels than any other attorney in the country.
