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 pay 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 SEC and FINRA 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. We have successfully recovered losses sustained by clients who have been duped into buying variable annuities and, in fact, have been asked by the National Association of Insurance Commissioners and North American Securities Administrators Association to instruct regulators at training sessions concerning the many problems with variable annuity investments.