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Investor Toolbox
A Warning About Variable Annuities
Brokers love variable annuities,
but most investors should view them as toxic investments.
Variable annuities are basically
mutual funds contained within a highly expensive insurance "wrapper." They are
attractive to brokers because they offer almost unbelievably high commission payouts
which the client never sees, but certainly pays through high annual expenses and
large “surrender charges” which are imposed if you try to sell the investment.
The pretense of these expenses is that they pay for benefits, including the so-called
death benefit, which is a seldom used and vastly over-priced form of portfolio
protection against market declines. The brokers who sell these investments seldom
inform clients that the benefits are virtually never worth the costs.
The NASD and SEC have brought numerous
cases against firms for mismarketing variable annuities, including for misrepresenting
the product and/or selling them to clients for whom they are not suitable. Gard
Smiley has recovered losses sustained by clients who have been duped into buying
variable annuities.
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