Variable Annuity Fraud
Variable Annuity Fraud Attorney
Do you believe you’ve been a victim of variable annuity fraud? If so, learning all you can and what you can do about it is the first step in getting help.
What Is a Variable Annuity?
A variable annuity is a financial policy between you and an insurance company. Therefore, an annuity is an insurance product that also serves as an investment account. Variable annuities are extremely complicated; therefore, they frequently result in misrepresentation by financial advisors, leading to variable annuity fraud.
But first, we will go over how a variable annuity is funded and how it works. This will help you understand why they are so susceptible to fraud.
How Is a Variable Annuity Funded?
When you buy an annuity from an insurance company, you will make one or more payments into your annuity. The insurance company will then take your money and invest it in a variety of assets. Those assets could consist of stocks, bonds, mutual funds, and other securities, all of which make up your annuity fund.
How Does a Variable Annuity Work?
A variable annuity is an investment account that will grow on a tax-deferred basis. Once you have funded your annuity, the insurance company will make periodic payments to you beginning immediately or at a future date.
What Is the Difference Between a Fixed Annuity and a Variable Annuity?
There are fixed annuity accounts and variable annuity accounts. A fixed annuity is one that will guarantee you a set payment for the term of your annuity agreement. That means your payments won’t go up or down regardless of what the financial markets are doing. However, because a fixed annuity is fixed and guaranteed, they only offer a minimal payout.
A variable annuity is one that fluctuates depending on the returns on the assets it is invested in. That means your payments could go up or down at any time throughout the term of your investment.
Fixed annuities are less risky than variable annuities. Agents typically charge high fees for variable annuities; therefore, there is more room for unethical agents to commit variable annuity fraud. Additionally, with a variable annuity, there are no guaranteed investment returns, meaning your investment balance might not grow and it’s possible you could even lose money.
What Is Variable Annuity Fraud?
Because variable annuities are so complicated, they frequently lead to financial advisors misrepresenting them. The practice of selling an unsuitable or inappropriate variable annuity would qualify as variable annuity fraud. Basically, when a financial advisor, broker, or agent misrepresents the facts about a variable annuity or they don’t disclose important information that would help you make an informed decision about a variable annuity, this would be considered variable annuity fraud.
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Examples of Variable Annuity Fraud?
Variable annuity fraud takes a variety of forms. Here is what you should watch out for to determine if you have been a victim of variable annuity fraud.
Unsuitability
Variable annuities are high-risk; therefore, there are usually better investment alternatives. However, many financial advisors will still push you and aggressively try to sell them to you, which is a violation of the securities rules. These rules require agents to ensure that any given investment is suitable for each investor’s specific needs.
Churning
Churning as a version of variable annuity fraud is also called excessive trading. Brokers earn high commissions on annuities and will sometimes try to sell you new variable annuities or other unnecessary replacements to make extra commissions.
Switching
Switching is also called twisting. This is when a financial advisor recommends that you switch your annuity from your current company to another company, regardless of whether it’s in your best interest or not. Brokers do this to make extra commissions.
Why Does Variable Annuity Fraud Occur?
As we mentioned, variable annuities are extremely complicated investments. Therefore, oftentimes, financial advisors will try to sell an annuity using a lot of financial jargon that, unless you are in the industry, you probably won’t understand—why would you? And that’s the point and why unethical advisors do this.
Additionally, sometimes unethical agents will fail to disclose the risks that come with variable annuities so they can sell more of them. Unfortunately, variable annuity fraud is commonly used to defraud older investors out of their retirement savings. Not to mention, since variable annuities are high-commission products, this is an incentive for brokers and agents to sell them even if they are not in your best interest.
What’s Next?
If you suspect you’ve been a victim and would like to talk with one of our attorneys about variable annuity fraud, please contact the Schwartz Law Firm today. We do not collect a fee unless we win your case. And if you’re not sure if you have a case, reach out and we can go over the details together. We look forward to serving you!