Annuities are insurance contracts that make routine payments to customers either immediately or at some point in the future. This insurance contract allows investors to protect and grow their retirement savings while providing them with guaranteed income. Some brokers and financial advisors recommend selling or exchanging annuities for “better” investment opportunities. However, liquidating or exchanging an annuity comes with a high price– commissions, tax implications, and the loss of benefits associated with the original annuity. For these reasons, liquidating or exchanging an annuity without very clear financial reasons may be unsuitable for customers. The securities fraud lawyers at Rich, Intelisano & Katz, LLP (RIK) have recovered millions for investors who suffered from annuity-related losses.
When investors sell or exchange their annuities, it comes with a heavy price. First, when customers sell their annuity, they are subjected to costly fees and penalties. For example, the customer may incur surrender charges and high cancellation fees. Second, customers will lose all benefits associated with the annuity, such as legacy protection which is a death benefit to help provide a legacy for your loved ones. Third, the customer forfeits expected benefits from the annuity– the customer will no longer have guaranteed income. Fourth, taxes may become immediately due on the proceeds. Lastly, there are often high commissions associated with the sale of annuities.
Regardless of the costs and losses associated with selling or exchanging annuities, brokers and financial advisors sometimes recommend such actions to customers in order to generate commissions for themselves. Essentially, liquidating or exchanging annuities could potentially be a scheme for your broker or advisor to take money out of your savings and put it into their pocket. What’s worse is that the broker or advisor will use your money from the sale of the annuity to purchase another annuity or other investment products further increasing commissions and fees. Just like with any scheme to take advantage of customers, this is ill-suited and exceedingly improper.