Were You Sold a VARIABLE ANNUITY That Was MISREPRESENTED REGARDING SURRENDER CHARGES AND FEES?
Variable annuities can serve a legitimate purpose for some investors, but they are complex, long-term products with significant fees, restrictions, and potential conflicts of interest.
Problems arise when a financial advisor recommends a variable annuity without adequately considering the investor’s age, income needs, liquidity requirements, investment objectives, risk tolerance, or existing assets.
At Mazer Law Firm PC, we represent investors who have suffered losses because brokers and financial advisors recommended unsuitable or improperly sold investment products, including variable annuities.
If you were told an annuity was “safe,” “guaranteed,” or an ideal retirement investment without receiving a clear explanation of its costs and limitations, the recommendation deserves a closer look.
Why Variable Annuities Can Cause Problems
A variable annuity is an insurance contract containing investment options whose values may rise or fall with the market. Unlike a bank account or fixed investment, the value of a variable annuity can decline.
Variable annuities may also involve:
- High annual expenses and fees
- Mortality and expense charges
- Investment-management expenses
- Additional charges for income or death-benefit riders
- Long surrender periods
- Penalties for accessing money early
- Complex restrictions on withdrawals
- Commissions and other financial incentives paid to the salesperson
The SEC warns investors that variable-annuity fees and expenses reduce investment returns and that surrender charges may remain in effect for many years.
Was the Variable Annuity Suitable for You?
The fact that an investment lost money does not automatically mean that misconduct occurred.
The important question is whether the recommendation was appropriate when it was made.
Warning signs may include a broker recommending a variable annuity to an investor who:
- Needed ready access to the invested money
- Was elderly or had a limited investment horizon
- Wanted preservation of principal
- Did not understand that the account value could decline
- Already had substantial retirement assets tied up in illiquid investments
- Was not told about surrender charges and ongoing expenses
- Was encouraged to put a large percentage of available assets into one annuity
FINRA has specific rules governing broker recommendations involving deferred variable annuities, including recommended purchases and exchanges.
Variable Annuities Inside an IRA or Retirement Account
Another issue worth examining is the sale of a variable annuity inside an IRA or other tax-advantaged retirement account.
One of the frequently promoted benefits of an annuity is tax-deferred growth. But an IRA already provides tax deferral. The SEC specifically notes that purchasing a variable annuity through a tax-advantaged retirement plan provides no additional tax-deferral advantage from the annuity itself.
That does not automatically make the sale improper, because an annuity may provide other insurance benefits. But the broker should be able to explain why the additional costs and features were appropriate for that particular investor.
Were You Switched From One Annuity to Another?
Annuity replacements and exchanges deserve particularly careful scrutiny.
When an investor is moved from an existing annuity into a new one, the investor may:
- Lose benefits contained in the old contract
- Incur surrender charges
- Begin an entirely new surrender period
- Pay new or higher expenses
- Receive features that provide little additional value
At the same time, the financial professional may receive compensation from the new sale.
The SEC advises investors to carefully examine the financial incentive behind a recommendation to exchange one annuity for another.
You May Have a Claim Against the Brokerage Firm
A brokerage firm may be responsible when its registered representative improperly recommends a variable annuity or when the firm fails to adequately supervise the recommendation.
Depending upon the circumstances, claims may involve:
- Unsuitable investment recommendations
- Misrepresentations or omissions
- Failure to disclose fees or risks
- Breach of fiduciary duty
- Negligence
- Failure to supervise
- Improper annuity exchanges
- Violations of securities laws or FINRA rules
Many disputes between customers and brokerage firms are resolved through FINRA arbitration rather than a traditional lawsuit.
Get an Independent Review of Your Variable Annuity
If you are concerned about a variable annuity that was recommended by a broker or financial advisor, you do not have to rely on the person who sold it to tell you whether something went wrong.
Attorney Glenn Mazer spent more than 20 years in the financial-services industry before representing investors in securities disputes.
Mazer Law Firm PC can review the annuity contract, account statements, surrender provisions, fees, transaction history, and circumstances surrounding the recommendation to determine whether there is evidence of misconduct.
Speak Directly With Attorney Glenn Mazer
Call (205) 644-3744 for a free case evaluation.
Mazer Law Firm PC — For the Investor.