Variable Annuity Fraud Lawyer

DO YOU NEED A VARIABLE ANNUITY FRAUD LAWYER?

Variable annuities are one of the fastest-growing investments sold by brokers, who sell more than $100 billion such annuities every year. They are improperly marketed as being safe, tax-free and without heavy up-front charges. Many investors of these annuities, however, see their premiums depleted due to high back-end costs, or even find that it takes years – even decades – to regain access to their money.

Brokers are motivated to sell variable annuities because they earn high commissions, which is often 4 to 6 percent of the amount invested. Thus, if a bad broker talks someone to into selling a $700,000 IRA and buying a variable annuity instead, the broker will earn an immediate commission of about $30,000. These commission expenses are typically taken from any premium an investor is to receive.

In addition, every investor of variable annuities will be hit with significant charges and expenses. If too much is withdrawn from a variable annuity account before the end of the surrender period, which usually lasts for 7 to 10 years, an investor will get hit with surrender charges. Some brokers can receive larger commissions depending on how long the surrender period is in an agreement.

The Financial Industry Regulatory Agency (FINRA) has fined many firms for poor supervision and procedures related to the sales of variable annuities. Bad brokers often target customers who are either senior citizens or are nearing retirement. Both the AARP and publications such asNewsweek, The Los Angeles Times, and the Chicago Tribune have warned that variable annuities often make poor investments and are sold using deceptive marketing techniques.

What are variable annuities?
According to the SEC, “a variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic payments to you, beginning either immediately or at some future date. You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments.”

With variable annuities, the investor’s money is invested similarly to that of mutual funds, except that they are tax-deferred, involves a death benefit and set payout options.

Variable annuities are tax-deferred, but not tax-free, meaning the investor only pays taxes on the income after money is withdrawn from the account. If the investor dies before receiving any payments, they will receive an agreed-upon death benefit.

Variable annuities have two phases. An “accumulation” phase, which can be as long as 6 to 8 years, is when premiums are allocated based on earnings and fees during that time. Next is the “distribution” phase, during which the investor receives agreed-upon payments for as long as there is money left in the account to be paid.

Victims of variable annuity fraud
There are nearly 80 million Baby Boomers living in the United States, with the oldest members of that generation either nearing or entering retirement. Retirees and senior citizens are often targeted for the sale of variable annuities because they hold assets for retirement or pension and they are usually concerned with increasing their assets heading into retirement.

Variable annuities have been sold by many of the country’s leading broker-dealer firms, but are also touted at finance seminars targeted at senior citizens. Elderly investors have been misinformed by their brokers, only to find that their purchased variable annuities do not pay out for years, or that it offers just the same tax protection as to IRA’s and 401k plans.

According to FINRA, scare tactics are often used in sales pitches for variable annuities, even if those facts are untrue. In the current economic downturn, some brokers are falsely claiming that variable annuities will protect investors from lawsuits or seizures of assets.