Variable Annuities Law Changed

Miami, FLSeniors living in Florida now have some added protection from unscrupulous brokers who sell them unsuitable variable annuities. The state has toughened the suitability requirements that such brokers must meet when they sell variable annuity insurance products to consumers. The state has also strengthened fines against those brokers who use fraudulent sales practices to sell annuities to customers.

The law, known as F.S. 627.4554—Annuity Investments by Seniors, has a number of amendments including requiring agents to take at least 3 hours of education on suitability in annuity and life insurance transactions, allowing more days for a customer to obtain an unconditional refund if he or she does not accept the annuity policy and requiring brokers to fill out detailed forms comparing the benefits of a senior's existing annuity to a newly-recommended annuity.

Regulators are concerned about annuities both because of their complexity and because they are not governed by the same rules that govern other investments.

Variable annuities are incredibly complex investment vehicles—there are seemingly endless types of annuities, each of them with their own pros and cons. And each variable annuity has its own fee schedule and surrender charges. Just because one variable annuity makes sense for a person does not mean that all variable annuities are suitable.

Part of the problem that seniors have faced is that they may have been convinced to switch from one variable annuity to another by unethical brokers who are looking to make a high commission. These brokers convince the seniors to switch annuities, but the seniors do not necessarily realize that by pulling out of one annuity they may pay high surrender fees and their money may be going into an annuity that is completely unsuitable for them. Furthermore, various annuities may have extra fees, depending on what benefits are added on to the investment. Seniors may not realize that the new annuity has different charges than their previous annuity.

Of course, by cashing out of an annuity, the investor could also be forfeiting any of the benefits—such as income guarantees—that were already paid for. That means that the senior may have paid a lot in fees for specific benefits that he or she then will never use.

Because variable annuities are so complex, seniors—and other investors—turn to brokers and financial advisors to help make sense of things. Unfortunately, sometimes they turn to the wrong person. They turn to someone who sees an easy way to make a commission, rather than doing the right thing. One senior in Florida reportedly got his $25,000 back after a broker put him in an unsuitable variable annuity. The senior's money was put in a 20-year fixed annuity—an investment that would be completely unsuitable for a senior. Luckily, Florida's Attorney General stepped in and got the senior his money back.

However, not all seniors get their money back. They wind up in unsuitable investments with little hope of seeing their money again.