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Variable Annuity Sales
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Variable annuities are insurance contracts providing payments that fluctuate
according to the performance of underlying mutual funds. Variable annuities
are marketed by insurance companies as attractive ways to invest your
retirement savings. Those over 65 years of age, and those investors who
had variable annuities placed into IRA accounts, are especially at risk
for fraud.
What are Variable Annuities?
Variable annuities are insurance contracts providing purchasers with
future payments that fluctuate according to the performance of mutual
funds and other managed funds into which a customers money is invested.
Variable annuities are sold by insurance companies and brokerage companies
for commissions. Variable annuities are long-term investment tools.
Often customers believe an annuity is safe because it is an insurance product.
Customers need to understand that the annuity balance can fluctuate just like
any other investment. The rate of return on variable annuities is not stable,
but varies with the investments your broker chooses for you - for example:
stocks, bonds, or money market accounts. With a variable annuity, you have no
guarantee that your investments will earn any return and you could lose money.
Variable annuities can be risky investments for some people - especially retirees.
When proposing a variable annuity, your broker should consider your age,
marital status, occupation or retirement status, financial situation, tax status,
and your specific investment goals and risk tolerance.
According to the New York Times and other publications, various state and federal
regulators are investigating the trading practices of the variable annuity industry.
On May 27, 2003, the NASD issued an "Investor Alert" with regard to the sales
of variable annuities. It said, in part: "The marketing efforts used by some variable
annuity sellers deserve scrutiny - especially when seniors are the targeted investors.
Sales pitches for these products might attempt to scare or confuse investors.
One scare tactic used with seniors is to claim that a variable annuity will protect
them from lawsuits or seizures of their assets. Many such claims are not based on
facts, but nevertheless help land a sale."
For a NASD Investor Alert Regarding Variable Annuities,
Click Here
What are Questionable Variable Annuity Sales Practices?
Among the abusive and improper sales practices by sellers
of variable annuities are the following:
- Unnecessary replacement of old variable annuities with new ones
to create unnecessary commission payments and surrender fees;
- no clear explanation of complex language and fee structures;
- the recommendation is unsuitable. Variable annuities may be unsuitable
for senior citizens or for those who had to mortgage their homes to afford the investment.
- purchased for a tax-qualified retirement account (eg. a 401K plan or IRA);
- fees and commission payments are not disclosed;
- risks are not disclosed;
- tax benefits are overstated; and
- switching to new variable annuities every few years. The
problem arises here when the new annuity has a higher fee, lower death benefit,
and forces an investor to pay a “surrender fee” for withdrawing money from
the old annuity too early.
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