Variable Annuities

Shepherd Smith Edwards and Kantas (SSEK Law Firm at represents investors who have suffered serious investment losses in variable annuities because of the negligence or misconduct of their financial advisors.

We work with wealthy investors, retail investors, institutional investors, and retirees and have recovered many millions of dollars on our clients’ behalf.

What is a Variable Annuity?

A variable annuity (VA) is a type of annuity with a value tied to an investment portfolio’s performance. It also is a contract between you and an insurer that involves the latter issuing monetary payments to you in the future in exchange for a lump-sum payment or series of payments made by you.

The variable annuity will provide you with different investment choices and options. These are known as “subaccounts” that can hold bonds, stocks, or other investments. Your investment’s value will depend on how well the options that you select perform.

If the investment portfolio tied to the variable annuity does well, the payments you receive will go up. If the portfolio does poorly, your payments will go down.

These payments, which may be for a set period or for the life of the annuitant, can include death benefits for your beneficiary even if you die before the payments start. In such instances, the amount will usually be what you have paid thus far for the variable annuity.

VAs are tax-deferred. You won’t pay taxes on income made or any investment gains until you take out your money. You can also transfer your funds from one variable annuity option to another without being taxed for the switch.

Ordinary tax income rates, however, will apply when you take your funds out of the VA. Also, it is inappropriate to place annuities in an IRA as they are already tax-deferred.

Variable annuities are long-term investments and are not suitable for short-term investing. They may seem like straightforward investments, but, like all annuities, VAs are considered complex investments and are not suitable for every investor type.

Fixed Annuity vs Variable Annuity: What’s the Difference?

While both variable annuities and fix annuities both provide regular income payments down the road, these investment choices are different. For example, a fixed annuity is an insurance contract that guarantees the buyer a set interest rate on what they pay into the account. With VAs, however, the interest can change depending on how well the chosen investment portfolio does.

A Few of the Risks Involving Variable Annuities :
  • While variable annuities offer an opportunity for higher returns and income than fixed annuities, they also provide greater exposure to the market and its risks, which can lead to losses. These are not low-risk investments.
  • In the event that you need to take money out of your VA account, you will likely pay stiff surrender fees and penalties, especially if you withdraw the funds before you reach a certain age.
  • Variable annuities can charge high fees, including management fees, mortality fees, and administrative charges among others which can add up and impact your returns in the long run.
  • In the event that you decide to trade your current variable annuity for a different one, you may be subject to surrender fees, with a new surrender charge period also kicking in for your new VA.
When Broker Misconduct or Negligence Causes a Variable Annuity Investor To Suffer Losses

Suggesting that you switch from one VA contract to another even if there is no sound reason for this change given your age, risk tolerance level, or investing goals can be negligence. This is known as excessive variable annuity switching.

Brokers usually earn 7-10% in commissions for selling VAs. Switching you to a new variable annuity will earn your financial advisor additional fees while likely leaving you subject to early surrender charges. Excessive switching of variable annuities for the purposes of earning commissions is known as churning, which is illegal. Unfortunately, the lure of more high commissions can compel an unethical financial advisor to churn variable annuities in a client’s account.

Other ways that brokers can negligently when handing variable annuities include:

  • Making unsuitable investment recommendations. VAs can be risky investments and they may not be suitable for every investor seeking to make money during retirement, which variable annuities are known to provide.
  • Making misrepresentations and omissions. Unfortunately, these investments are often marketed as a “guaranteed” way to make money later on. But what is not always made clear is that the investments in a VA’s subaccount can be aggressively managed, which may cause you to suffer significant losses. It is a broker’s duty to not only make sure that you understand any investment they sell to you, but also that you are fully apprised of and comprehend the risks involved.
Knowledgeable Investment Fraud Attorneys

Call (800) 259-9010 today or contact us online to speak with an experienced variable annuities lawyer. SSEK Law Firm has successfully represented thousands of investors across the United States and abroad in their investor claims against brokerage firms and their registered representatives.

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