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Variable Annuity Fraud: Don't Become A Victim
Variable annuity investors are becoming increasingly disenchanted with their annuity investments, especially elderly investors who have been forced to file arbitration claims and securities lawsuits against financial advisors and stock brokers for their failure to disclose certain information about these complex financial products.
There are different types of variable annuities, and each one has features unique only to it. This includes the fee schedule, as well as surrender charges. Essentially, a variable annuity is a contract between the investor and an insurance company in which the insurer promises to make periodic payments starting immediately or at some future date.
Variable annuities are not right for every investor, and they are never a suitable investment for someone with short-term investment goals. There are several other issues to keep in mind about variable annuities, including their high cost structure, a lack of immediate liquidity, tax penalties for early withdrawal and forfeiture of future income guarantees, and the possibility of substantial financial losses during times of market fluctuations.
In recent years, there's been an increase of news stories about elderly investors who've become victims of variable annuity fraud. In many instances, these investors took their money out of one variable annuity and placed it into another based on the recommendation of an unscrupulous broker looking to collect a big commission fee.
As it turns out, the new variable annuity proved to be an entirely unsuitable match for their future income needs. In some cases, the new variable annuity contract had a lower contract value and a smaller death benefit. Lastly, some investors were forced to pay huge surrender fee charges, which can occur anytime you exchange a variable annuity for another one.
In August 2009, a widow filed an arbitration claim with the Financial Industry Regulatory Authority (FINRA) against Ameriprise Financial Services over allegations a broker at the company failed to properly advise her elderly husband about a variable annuity purchase and further bungled the beneficiary designation. According to the claim, the Ameriprise broker, Deborah Amilowski, advised the woman's husband - who was 77 years of age at the time - to purchase a variable annuity that essentially consisted of a basket of mutual funds with higher expenses, no guaranteed death benefit, and no safety net to protect the assets.
As stories like this become more and more prevalent, investors are advised to do their own due diligence when considering a variable annuity purchase or exchanging one variable annuity for another. The bottom line is this: Variable annuities are complex investments that are designed as retirement savings vehicles for the long-term investor. If you decide to invest in a variable annuity, be sure to request a prospectus from the insurance company or your financial professional. Then, read this document thoroughly. The prospectus should contain important information about the annuity contract. This includes the fee schedule, any additional charges, death benefits, and annuity payout options.
For more information on variable annuities and the questions to ask before you invest, visit the Securities and Exchange Web site at http://www.sec.gov/investor/pubs/varannty.htm#wvar. The Financial Industry Regulatory Authority (FINRA) also provides information on what to look out for when exchanging variable annuities at http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/AnnuitiesAndInsurance/P006045.
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