Variable Annuities

What is a Variable Annuity

Variable annuities are one of the most difficult investments for the average retail investor to understand. Variable annuities have sub-accounts containing mutual funds with exposure to the markets. Variable annuities also possess an insurance component. Variable annuities usually have an income or rider provision that determines how the investor will receive payout from the investment. Not surprising, variable annuities are not only one of the most difficult investments to understand, but variable annuities pay brokers some of the highest commissions on the street. Commissions for a variable annuity sale are often as high as 6% of the purchase price. The ongoing fees and costs for a variable annuity can run as high as 2.5-3% of the underlying investment’s value. Variable annuities are illiquid investments with draconian early withdrawal penalties. FINRA rules require investment professionals to fully explain the risks of the underlying investments in the sub-accounts, fully advise the investor of all ongoing fees and costs, explain how the insurance aspect of the investments works, fully explain payout options, ensure that the investor understands that variable annuities are illiquid investments with significant early withdrawal fees and penalties, and explain the tax-deferred nature of the investment, particularly if the investment professional recommends the variable annuity in a retirement account.

Variable Annuity Risks and Information

Variable Annuity Risks and Information

Variable Annuity Risk

Anytime an investment professional recommends a variable annuity to an investor there is a potential suitability claim.  Brokers often liberally use the word guarantee during the sales pitch when describing payout options. However, brokers fail to fully explain that different payout options carry yearly costs. Investment professionals often fail to explain how expensive the ongoing fees and costs are to maintain the annuity, running as high as 2.5 to 3%.  Investors are also often confused by the fact that in order to receive the so-called guaranteed income, an investor must forfeit all access to the principal investment and annuitize the payout in income payments. Investment professionals also fail to explain the costs of maintaining the insurance component of the variable annuity. In addition, the underlying investment choices are also expensive and often fail to keep pace with relevant benchmarks. Variable annuities are rarely a suitable investment recommendation. Firms that have an affiliation with an insurance company tend to sell variable annuities to many of its investors. More often than not the investment professional making the variable annuity recommendation either recommends variable annuities to many clients, or needs the commission.

Legal Help for Victims of Variable Annuities Securities Fraud

The Investment Fraud Law Firm of Gilman Law LLP is a leading securities fraud law firm and is here to help you recover damages on your variable annuities claim. For a FREE consultation and evaluation of your case, please fill out our Free Consultation Form Online, or if you need to speak to a securities fraud attorney right away CALL TOLL FREE (888) 252-0048 today.