Variable Annuity Lawyer

A variable annuity lawyer at Weltz Law represents investors harmed by variable annuities sold by a broker. Variable annuities carry high fees, long surrender periods, and market risk. Problems often come from unsuitable sales to seniors, costly exchanges into new contracts, or misstated benefits. When a registered broker made the sale, the dispute may belong in FINRA arbitration.

Our variable annuity lawyers work inside the FINRA dispute resolution forum on behalf of investors nationwide. FINRA stands for the Financial Industry Regulatory Authority. It oversees brokerage firms and runs the arbitration system for most disputes between investors and their brokers.

This page is part of our alternative investment attorney section, within our broader securities lawyer practice.

What Is a Variable Annuity?

A variable annuity is a contract with an insurance company that lets you invest in funds called subaccounts. Your account value rises and falls with those investments. Earnings grow tax-deferred, and the contract can later pay income. Many variable annuities also offer optional riders for death benefits or guaranteed income, at extra cost.

Unlike fixed annuities, variable annuities are securities. That means the brokers who sell them must be registered and must meet the suitability and best interest standards.

It also means disputes over variable annuity sales by a registered broker generally go to FINRA arbitration. Fixed and indexed annuities are usually treated as insurance products instead. See our equity-indexed annuities page for more on that difference.

What Fees Come With Variable Annuities?

Variable annuities often carry several layers of fees, including mortality and expense charges, administrative fees, subaccount fund expenses, and rider fees. Total yearly costs can run well above 2% of the account. Surrender charges also apply if you withdraw money in the first several years.

Common charges include:

• Mortality and expense charge: Paid to the insurer for its guarantees, often over 1% a year.
• Administrative fees: Ongoing costs for recordkeeping.
• Subaccount expenses: The cost of the underlying investment funds.
• Rider fees: Extra charges for income or death benefit guarantees.
• Surrender charges: Penalties for withdrawing early, often lasting six to eight years or more.

Those costs add up. Over many years, they can take a large bite out of returns, especially compared with a low-cost fund held in a retirement account.

Are Variable Annuity Riders Worth Their Cost?

Variable annuity riders add guarantees, such as a minimum death benefit or lifetime income, for an extra yearly fee. Some investors value that protection. But riders can be complex, costly, and limited by fine print. A broker should explain exactly what a rider does and what it costs before recommending it.

Income riders are a common example. They promise a minimum income later, often based on a "benefit base" that grows at a set rate. That base is not cash. Investors cannot simply withdraw it.

Many investors believe their account is growing at that guaranteed rate. It is not. The real account value still moves with the market, minus fees.

A rider can make sense for the right investor. Sold without a clear explanation, it can add cost without adding real value.

When Is a Variable Annuity Unsuitable for an Investor?

A variable annuity may be unsuitable when the investor needs access to the money soon or is elderly with a short time horizon. It may also be a poor fit for money already in an IRA or 401(k). Selling one to an investor who will not benefit from its features raises serious questions.

Putting a variable annuity inside an IRA is a common example. The IRA already grows tax-deferred. The annuity's main tax benefit adds nothing, yet the investor still pays the annuity's higher fees.

Age matters too. A long surrender period can trap an older investor who may need money for health care or living costs.

Claims tied to these sales may include unsuitable investment recommendations. Learn more about related problems on our annuity fraud lawyer page.

What Is Variable Annuity Switching, and Why Is It a Problem?

Variable annuity switching happens when a broker moves a client from one annuity into another, often through a tax-free exchange. A new contract can restart surrender charges and pay the broker a new commission. If the client gains little or nothing, the switch may be unsuitable.

Brokers sometimes pitch a switch as an upgrade. A better rider, a new feature, a higher guaranteed rate. But the client may give up valuable guarantees in the old contract and take on new surrender charges.

In 2016, FINRA found that one large firm approved about 35,500 variable annuity replacements from 2009 through 2014. In 72% of them, the firm misrepresented or left out at least one important fact about the costs or guarantees of the customer's existing contract. The firm neither admitted nor denied the findings.

Repeated switching can work much like churning. See our churning attorney page.

How Do Brokers Misrepresent Variable Annuities?

Brokers may misrepresent variable annuities by overstating guarantees or downplaying fees and surrender charges. Some promise tax benefits that do not apply or describe the product as having no risk. Many investors do not learn the true costs until they try to take money out.

"Guaranteed" is a powerful word. But a guaranteed income rider does not mean the account value is guaranteed. Investors often confuse the two.

Brokers may also skip the tax picture. Gains in a variable annuity are taxed as ordinary income when withdrawn, not at lower capital gains rates. For some investors, that can mean higher taxes later.

Misstatements like these may support a claim for misleading information.

Why Do Brokers Sell So Many Variable Annuities?

Variable annuities often pay brokers large commissions compared with many other investments. Exchanges into new contracts can pay a new commission each time. That pay creates a strong incentive to sell and switch annuities, even when the client would be better served elsewhere.

Not every annuity sale is a bad one. Some investors do benefit from guarantees or lifetime income.

The problem is when the broker's pay drives the recommendation instead of the client's needs. A broker who never compared the annuity with simpler, cheaper options may not have met their duty.

When Can Variable Annuity Investors Bring a FINRA Claim?

Variable annuity investors may be able to bring a FINRA claim when a registered broker or firm recommended the annuity or an exchange. The claim focuses on the broker's conduct. That can include an unsuitable sale, an unjustified switch, misstated fees or guarantees, or poor supervision by the firm.

Firms must have supervisors review variable annuity sales and exchanges. A firm that approved nearly every application without a real review may face a failure to supervise claim.

When fees or charges were hidden or excessive, an overcharging claim may also apply.

Who Is Most at Risk From Unsuitable Variable Annuity Sales?

Seniors are most at risk. Many are sold long-term annuities with surrender periods they may not outlive, or switched out of contracts with valuable guarantees. Some move most of their savings into one annuity, leaving little cash for emergencies.

Picture an 82-year-old widow whose broker moves her into a new variable annuity with an eight-year surrender period. She gives up a death benefit in her old contract. Two years later, she needs money for assisted living and faces a large surrender charge.

When older investors are involved, these sales may also raise concerns about financial elder abuse.

How Does the FINRA Six-Year Window Apply to Variable Annuity Claims?

The FINRA eligibility rule generally bars claims filed more than six years after the event that caused the dispute. For variable annuities, that is often the purchase or exchange date. Each exchange may have its own date. State deadlines may also apply.

Annuity problems often surface years later, when the investor tries to take money out. By then, early purchases may be close to the six-year mark.

Our variable annuity lawyers check every purchase and exchange date early in a review.

What Damages Can a FINRA Panel Consider in a Variable Annuity Claim?

A FINRA panel may consider investment losses, surrender charges, excess fees, and lost guarantees from a prior contract. It may also weigh what the money might have earned elsewhere, plus interest and costs. The panel decides which measures fit the facts. No one can say in advance what a panel will award.

In switching cases, the value of benefits given up in the old contract can matter a great deal. So can new surrender charges.

The contract terms, exchange forms, and the firm's supervision records shape the arguments our FINRA arbitration attorneys can make.

What Records Should You Gather for a Variable Annuity Lawyer?

Gather your annuity contracts, prospectuses, annual statements, exchange or replacement forms, surrender charge schedules, and every communication with your broker. If you switched contracts, gather records for both the old and new annuities.

Replacement forms matter a great deal. They often compare the old and new contracts. Those comparisons may be incomplete or wrong.

Emails, texts, and marketing pieces can show how the annuity was pitched. If something is missing, the brokerage firm keeps its own records, and many can be requested during discovery.

How Do Our Variable Annuity Lawyers Handle a FINRA Claim?

Our variable annuity lawyers start with the sale or exchange. Who recommended it, what were you told about fees and guarantees, and what did you give up? Those answers shape whether a FINRA claim fits and which claims to bring.

Next, our team compares the annuity with your age, goals, liquidity needs, and other holdings.

If the facts support a claim, our FINRA arbitration attorneys draft and file the Statement of Claim. That is the written filing that starts a FINRA case.

Discovery follows. Our team asks for the firm's annuity review files, supervisor approvals, exchange records, and the broker's commission data.

If the case reaches a final hearing, our variable annuity lawyers present the evidence and witnesses to the panel. No one can predict how a panel will rule. Our page on FINRA arbitration explains each stage.

Talk With a Variable Annuity Lawyer at Weltz Law

Did a broker sell you a variable annuity, or switch you into a new one, that did not fit your needs? It may be worth a closer look. A conversation with a variable annuity lawyer can help you understand what options may exist in FINRA arbitration.

Our variable annuity lawyers represent investors, retirees, families, and trusts nationwide. Bring your annuity contracts, statements, and any messages from your broker. Contact Weltz Law today to talk through what happened.