Annuity and variable life investments are expensive, provide little help for retirement and render your savings illiquid. Financial professionals push these investments because these investments pay commissions that can be ten times higher than the commission on appropriate investments.
The complexity of these investments hide the commissions and the unnecessary costs. But it is important to remember that most financial professionals are required to act in your best interests when recommending investments or investment strategies. This means that they can only offer suitable investments.
Variable contracts, life variable life and variable annuities, can be unsuitable for multiple reasons. FINRA, the regulatory agency that oversees securities brokers, views variable annuities with suspicion. “Due to the complexity and confusion surrounding them, which can lead to questionable sales practices, variable annuities are a leading source of investor complaints to FINRA.”
An investor must be informed of all costs for the annuity to be suitable, including advisory fees and commissions. The death benefit must be desired and beneficial to the investor for the annuity recommendation to be suitable.
“When making a recommendation of an annuity, [the insurance producer] shall act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the producer’s or the insurer’s financial interest ahead of the consumer’s interest. The requirements under Section 5.A.1.a. require a producer to consider the types of products the producer is authorized and licensed to recommend or sell that address the consumer’s financial situation, insurance needs and financial objectives.
An investor must be informed of all costs for the annuity to be suitable, including advisory fees and commissions per FINRA Rule 2330(b)(1)(A)(i). The death benefit must be desired and beneficial to the investor for the annuity recommendation to be suitable.
The lack of liquidity alone also makes a variable annuity sale unsuitable. Such a finding was recently made by FINRA in Dept. of Enforcement v. Xagoraris. In FINRA’s 2014 decision, in which the broker was barred from the securities industry, FINRA stated that a variable product was unsuitable because of the lack of liquid funds to pay the premiums. This was found in Xagoraris even though the investor had over $430,000 in mutual funds and in the investor’s IRA.
We have seen a substantial number cases concerning variable annuities and variable life over the past 20 years. Please call us if you have questions or comments.
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