What is a Variable Annuity?

A variable annuity is a complex financial and insurance product that requires full understanding before investing. Many individuals looking ahead to retirement consider variable annuities as an investment option. Variable annuities include a contract with either an insurance company or financial institution under which the insurer agrees to make periodic payments to you, the investor. They can be purchased by a single payment or series of payments over a mutually agreed upon time frame.

The investment vehicle takes place in two main phases. First, the accumulation of funds can be made in sub-accounts that operate in a way similar to mutual funds. Second, the investments can then be allocated to different types of mutual funds, such as equities or bonds.

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Benefits of Variable Annuities

Individuals looking for investment opportunities are drawn to variable annuities for their three main benefits. They include:

  1. Periodic payments. These payments can be made for the duration of the investor’s life or the life of their beneficiary.
  2. Death benefit. If you die before the insurer has started making payments, your beneficiary is guaranteed to receive at least the amount of your purchase payments.
  3. Tax-deferment. The taxes on this investment are deferred until the money is withdrawn.

In addition, investors are allured by the possibility of receiving an increasing amount of income from variable annuities to be used as cash flow for retirement. However, the value of the investment is determined by the market’s performance.

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; thus, if the market is doing well, so is the investment, and vice versa.

Additionally, variable annuities are illiquid, meaning that neither the investor or 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 will 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, so 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 to 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 are required to look at numerous factors in your portfolio: financial situation, age, investment experience, existing assets, and risk tolerance. However, in many cases, brokers and their firms fail to do so in order 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, an investment fraud lawyer can help. Attorneys like those at Oakes & Fosher understand the stressful situation you face when you put your faith (and investment) in someone who set 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. It’s crucial to have a lawyer with experience in variable annuity fraud representing you. They know the facts and present the evidence, so you don’t have to.

Contact Our Variable Annuity Attorneys Who Will Fight for You

When a broker or firm has been found liable for variable annuity fraud, often the damages recovered by investors are substantial. At Oakes & Fosher, we work tirelessly to investigate your securities fraud claim and gather evidence regarding the fraud committed against you.

With hundreds of cases under our belt, we are seasoned in the area of securities fraud. We are keenly aware of the legal duties brokers and brokerage firms have to their customers, and the best ways to recover for the damages you have incurred. If you believe you have been misled to a variable annuity investment that has wreaked havoc on your bottom line, it’s imperative that you contact the experienced attorneys at Oakes & Fosher.

When you contact our variable annuity lawyers, we will provide you with a free consultation, where we review your broker’s conduct and potential case. Our team of paralegals and attorneys have extensive knowledge and resources to fight for the compensation you deserve. Call us at 314.310.0279 or complete our online contact form to get started. Our St. Louis-based variable annuity fraud law firm is able to represent you in arbitration in various places across the country.