Variable annuities can be complex investments, and understanding their intricacies, especially when it comes to “switching” or “exchanging” them, is crucial for protecting your financial well-being. If your financial advisor recommended that you switch from one variable annuity to another, you might be wondering if that decision was truly in your best interest and if you have a claim for recovery.
Many investors are sold variable annuities as a way to grow their retirement savings with a death benefit and potential income guarantees. However, these products often come with high fees, surrender charges, and complex riders. When an advisor suggests moving from one variable annuity to another, it raises important questions:
- Did you incur new surrender charges? Many variable annuities have surrender periods, during which you’ll pay a penalty if you withdraw funds or switch out of the annuity. A new annuity often comes with a new surrender period, effectively “resetting the clock” and tying up your money for even longer.
- Were the new fees higher? Variable annuities have a variety of fees, including mortality and expense risk charges, administrative fees, and fund expenses. Did the new annuity have higher overall fees, eroding your returns?
- Were the benefits truly better, or just different? While a new annuity might offer some different features or riders, were those benefits truly necessary or suitable for your financial goals, especially considering any additional costs or charges?
- Did you understand all the implications? A financial advisor has a responsibility to clearly explain all the pros and cons, including costs and risks, associated with a variable annuity switch. Were you fully informed before making the decision?
- Was another annuity in your Best Interests? While the current variable annuity you are holding may not be working for you, replacing it with another similar product may not be in your best interests when a portfolio of cheaper and liquid investments are available. Your broker’s duty is to evaluate those alternatives and only recommend the investments that are in your best interests.
The Red Flags of Unsuitable Variable Annuity Switching
Unfortunately, some financial advisors may recommend variable annuity switches primarily to generate new commissions for themselves, rather than to genuinely benefit their client. This practice is often referred to as “twisting”, “churning”, or “unsuitable switching.” Here are some signs that a variable annuity switch may have been unsuitable:
- Repeated switches: If you’ve been advised to switch variable annuities multiple times over a short period.
- New surrender charges: You incurred significant new surrender charges simply to move into another annuity that offered similar benefits.
- No clear financial benefit: There was no obvious, tangible financial advantage to the new annuity that outweighed the costs and loss of benefits from the old one.
- Lack of explanation: Your advisor didn’t thoroughly explain the fees, risks, and surrender charges of both the old and new annuities, or the specific reasons why the switch was beneficial to you.
Your Rights as an Investor: What to Do Next
If you suspect that your financial advisor recommended an unsuitable variable annuity switch, you may have grounds to recover your losses through FINRA arbitration. The Financial Industry Regulatory Authority (FINRA) provides a forum for investors to resolve disputes with their brokerage firms and financial advisors.
You might not even realize you have a claim, but if a variable annuity switch resulted in unnecessary fees, surrender charges, or simply left you worse off than before, it’s worth exploring your options.
Don’t let concerns about “suing your broker” deter you. Many investors hesitate to pursue claims against their financial advisors, but it’s important to remember that you have rights. Your financial advisor has a duty to act in your best interest. If they breached that duty, you may be entitled to compensation.
How to Evaluate Your Variable Annuity Switch
- Gather your documents: Collect statements for both your old and new variable annuities, any disclosure documents, and correspondence with your financial advisor.
- Review the costs: Compare the fees, surrender charges, and riders of both annuities. Did the new annuity genuinely offer better value for the cost?
- Consider your goals: Did the new annuity align better with your long-term financial goals, or did it seem like a lateral move with added expenses?
Understanding whether your variable annuity switch was suitable can be complex. If you have concerns, seeking guidance from an experienced securities attorney is a crucial step. They can help you analyze your situation, understand your rights, and determine if you have a claim for recovery.
Don’t wait to investigate. If you believe you’ve been a victim of an unsuitable variable annuity switch, it’s time to understand your options and take action.
Sean M. Sweeney is a shareholder at Halling and Cayo, a full service law firm in Milwaukee, WI and the head of its Securities Litigation team.
He represents individual and institutional investors in FINRA arbitration and court nationwide. He recovers investment losses from fraud or breach of duty from their broker-dealer.
Contact him at (414) 755-5020 or via e-mail at SMS@hallingcayo.com to see if he can help recover your funds.