Variable Annuities

Variable annuities are intricate financial products that blend investment opportunities with insurance benefits, making them among the more complex instruments in the securities industry. While they may offer potential tax advantages and long-term financial benefits, they also carry significant risks that brokers must fully disclose before recommending them to investors. When brokers fail to provide a clear explanation of how these annuities work, or if they are recommended to clients for whom they are unsuitable, investors can suffer unnecessary losses.

If you have concerns about a variable annuity investment, Malecki Law, a New York-based securities law firm, can conduct a thorough review to assess whether you were misled or placed in an investment that was not appropriate for your financial circumstances.

A variable annuity is a contract between an investor and an insurance company in which the investor agrees to contribute funds, typically in exchange for tax-deferred growth and future payouts. Unlike fixed annuities that provide a guaranteed return, variable annuities fluctuate in value based on the performance of underlying investments, such as mutual fund-like subaccounts.

While variable annuities may offer death benefits or guaranteed lifetime income, these features often come at a high cost, including significant fees, sales commissions, and potential penalties for early withdrawals. Investors may also face surrender charges, meaning they must pay a fee to withdraw funds within a certain period after purchasing the annuity. These aspects make it crucial for brokers to fully explain the costs and risks associated with variable annuities before recommending them.

Variable annuities are often marketed as long-term investment solutions, but they are not suitable for every investor. The sale of these products has been associated with several problematic practices, including:

• High fees and commissions – Brokers earn significant commissions from selling variable annuities, which can create conflicts of interest.
• Early withdrawal penalties – Investors who need access to their funds before a certain time may be subject to steep surrender charges.
• Complexity and risk – Many investors do not fully understand how these products work, and brokers may fail to adequately explain the risks.
• Unsuitable recommendations – Variable annuities may not be appropriate for older investors or those with short-term financial goals, yet some brokers still push these products for their own financial gain.

If your broker recommended a variable annuity without fully disclosing these risks or considering your financial needs, you may have grounds for legal action. Malecki Law has extensive experience evaluating cases where investors were sold annuities under misleading circumstances.

The sale of variable annuities is regulated by both the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). FINRA Rule 2330 establishes specific guidelines that brokers must follow when recommending variable annuities, including heightened suitability requirements. Brokers must ensure that:

• The annuity is suitable for the investor’s financial situation and objectives.
• All fees, risks, and contract terms are clearly explained.
• The investor understands the long-term nature of the investment and potential restrictions on withdrawals.

Brokers and firms that fail to meet these obligations can face regulatory sanctions. For example, FINRA has suspended brokers for recommending unsuitable annuities to elderly investors and fined firms for improper annuity sales practices.

Malecki Law has successfully helped investors recover losses when brokers have violated these rules and placed their clients in inappropriate investments.

Investors who have suffered financial harm due to misleading or unsuitable variable annuity recommendations may be able to seek recovery through arbitration or mediation. FINRA arbitration, a common method of resolving investment disputes, allows investors to present claims against brokers and brokerage firms for misconduct, including:

• Unsuitability
• Misrepresentation or omission of material facts
• Failure to disclose fees and risks
• Breach of fiduciary duty
• Failure to supervise

If you have experienced unexpected losses, find that your funds are locked into an annuity you cannot easily access, or believe your broker misrepresented an investment’s benefits, it is essential to take action.

Malecki Law has helped numerous investors recover losses stemming from improper annuity sales to other investment fraud cases. Our team of experienced securities attorneys is prepared to investigate your case, identify potential wrongdoing, and pursue legal remedies on your behalf.

If you believe you were misled into purchasing a variable annuity that was not suitable for you, contact Malecki Law at (212) 943-1233 or email jenice@maleckilaw.com for a free consultation. We can assess your situation and advise on your legal options to seek financial recovery.