Variable Annuities

Find a Lawyer in Your State

Need Help?

Find a Lawyer Near You

Submit your Variable Annuities claim details for a free, no obligation case review

Get Started:

Variable Annuity Fees and Expenses

Variable annuity sales have soared over the past decade, as have violations in how they are marketed. The complexity of the laws governing their issuance and the risks to the buyer which may not be disclosed have caused regulators to step up scrutiny of variable annuity sellers. In response to the growing complaints and lawsuits and settlements charging abusive sales tactics, the Securities and Exchange Commission proposed a new rule in August 2005 that would make it more difficult for brokers to sell variable annuities inappropriately.

Notorious for high fees, the average annual expense on variable annuity subaccounts, which are mutual funds, stands at 2.08% of assets compared to charges of 1.38% for the average mutual fund. Variable annuities have sales and surrender charges, or fees an investor might pay if selling the investment before a certain period of time, and they may impose a variety of fees and expenses when you invest in them.

Variable annuity fees and expenses can include mortality and expense risk charges, which the insurance company can charge for the insurance to cover guaranteed death benefits, annuity payout options that can provide a guaranteed income for life or guaranteed caps on administrative charges. Fees for administrative record keeping and other administrative expenses can be charged, as well as underlying fund expenses relating to the investment subaccounts and charges for special features like stepped-up death benefits, guaranteed minimum income benefits, long term health insurance or principal protection.

Because it can be difficult to understand the differences in contracts, seniors are often sold variable annuities that do not fit their needs, but the proposed regulation would address these concerns. Under the new rule, brokers would be required to provide potential variable annuities buyers a summary document that discloses the product’s material features and major risks, including outlining in plain English the surrender charges, IRS penalties for distributions prior to age 59 ½, sale charges, mortality and expense charges, federal and state tax treatment of distributions after age 59 ½ and market risks.

Basically, the proposed risk disclosure would help investors better understand whether the variable annuity will meet their needs. The second component of the proposed rule would require a broker’s supervisor or manager to double-check whether the sale of a variable annuity was suitable or not. Regardless of whether the proposed rule is adopted, some experts have advised prospective buyers to learn as much as possible about variable annuities. For example, experts say retirees or seniors over the age of 65 should avoid variable annuities completely because of the high fees.

Should there be any potential gain from subaccounts, the high fees will eat up a large portion of them. Investors who see the subaccounts not performing well will take additional hits with the high fees and market loss, and trying to get out of the variable annuity will just mean a substantial surrender fee.

Annual annuity sales have more than doubled in the past decade, hitting a record $1.65 trillion last year, but variable annuities are only a good idea for a small percentage of people, according to some experts, because of their high costs and lockup periods. Investors should check all their options before deciding what is an appropriate investment before deciding to buy.

Online Lawyer Source

Lawyers & Legal News Near You

Need Legal Help?

Start Here for a Free Case Review!

Variable Annuities

Find a Lawyer in Your State

Need Help?

Variable Annuity Fees and Expenses

Other Areas of Law