The fraudulent acts of a financial advisor can be serious for investors of all ages. However, the category of investment fraud known as variable annuity investment fraud is particularly unethical, as it typically takes advantage of older individuals who rely on their investments to be comfortable in their retirement. With the economy so tight these days, many individuals at or near retirement age are looking for ways to grow their income through investments, and for the inexperienced, become vulnerable to fraudulent practices.
What are Variable Annuities?
Variable annuities are tax-deferred investment contracts that let investors choose from a variety of different investment options. When and if the investor choses, the annuity pays out an income to the investor the industry bases on how the investments have performed. It is different from a fixed annuity, which guarantees investors a certain payout and is generally a much safer investment.
Variable annuities do have benefits for a certain type of investor. They help investors build their savings by offering the opportunity to grow their capital long-term. However, they aren’t right for everyone, and financial advisors have a professional duty and obligation to advise their clients on whether or not variable annuity investments are the right choice for them.
Unfortunately, because variable annuity investments offer financial advisors one of the highest commissions in the market, unethical financial professionals have an incentive to push their clients to invest in these funds, even if they aren’t a wise choice. An experienced investment fraud attorney may be able to help recover damages if your financial advisor breached his or her fiduciary duty by selling you variable annuity investments without apprising you of the associated risks.
How Can Variable Annuities be Fraudulent?
Companies sell variable annuities to investors to earn commissions. Often, variable annuity investments are higher risk than other types of securities, so federal and state laws governing fraud in stocks and mutual funds apply to them. If a financial advisor fraudulently convinces you to invest in an annual annuity, all current securities fraud statutes can be brought up in the charges against them to help you recover your loss in damages.
How Does Variable Annuity Fraud Work?
Annuities are complex and have many pieces that investors are unlikely to understand. Most annuity features have penalties for investors to withdraw their own money, and these are often the most misunderstood aspect of annuities. Annuity fraud happens with advisors misrepresent facts or fails to disclose crucial information while soliciting the purchase of an annuity.
There are as many annuities frauds as there are annuities. One of the most pervasive is variable annuity fraud. Variable annuities can be risky, and brokers don’t always make clear that there is no guarantee of a return on investment or that they often carry hidden fees with a large percentage of the investment paid to the broker as a sales commission, which is why some may recommend them despite it not being in the client’s best interests.
There isn’t just one kind of variable annuity fraud, however, and it’s important to understand the different ways that a financial advisor can take advantage of investors. If your advisor encourages you to sell off an existing variable annuity investment and replace it with a new one unnecessarily, it generates a commission for the advisor but added fees for you as the investor.
Financial advisors can also be guilty of hiding information from their clients, such as pushing them towards investing in a specific variable annuity over an identical one to earn additional commission or not revealing an annuity’s associated risks to investors.
Financial advisors have a professional responsibility to provide their clients with investment advice that benefits their clients, not necessarily themselves. If your financial advisor did not do his or her due diligence regarding your investments, and you lost money because of fraudulent or untrustworthy advice, you can sue to recover damages.
The law also entitles investors to cancel a fraudulent variable annuity purchase and for the advisor to return the investor’s principal investment. There are even protections in place for seniors who have been the victims of variable annuity investment fraud. For those who are already retired, it may be difficult to understand the complexity of the fraud. If you suspect that your financial advisor provided you with bad advice, fill out our contact form to talk to an attorney at Erez Law who can help you determine your legal options.