Switching Annuities

Updated: November 2023

Why Would a Broker Recommend Selling One Annuity & Buying Another?

Annuities typically pay high commissions (3-7%) to the broker and the brokerage firm. We have seen situations where an unscrupulous broker will recommend the sale of one annuity followed up by the purchase of another annuity. While there can be legitimate and justifiable reasons for swapping one annuity for another, many times the new annuity offers nothing not provided by the annuity you selling. The only real change is that you will have incurred additional costs and may incur an economic loss as a result of the switch.

FINRA Rule 2330– Variable Annuity Switching

Financial advisors are required to make a reasonable inquiry and review of a customer’s investment profile prior to making the recommendation to switch annuities. Factors related to the investor’s profile that are to be considered include:

  • Age
  • Health
  • Income level
  • Tax Status
  • Liquid net worth
  • Investment Objectives
  • Investment Experience
  • Risk Profile
  • Financial Needs

A cost benefit analysis should be prepared by the financial advisor taking into account any surrender charges on the annuity being sold as well as commissions on the replacement annuity. If your broker fails to provide you with such an analysis, you should deem that a ‘red flag’ and inquire further before agreeing to the switch.

Section 1035 of the Internal Revenue Code affords investors with an opportunity to swap existing life insurance policies or annuities for a more suitable replacement, tax free.

Potential benefits of a 1035 Exchange:

  • Cost Basis of the original annuity is preserved.
  • Potential benefits of improved contract terms

Limitations and risks from Annuity Switching:

  • Commissions
  • Surrender period may be extended meaning access to funds may be delayed
  • Higher annual fees

FINRA offers advice warning that 1035 exchanges are not appropriate for everyone.

The Investment Loss Recovery Lawyers at Rex Securities Law Can Help You Recover Damages For Annuity Switching

If you think you are a victim of Annuity Switching or if you have questions about how your account has been handled by a financial advisor, contact us for a complimentary consultation with an experienced securities lawyer to learn how you may be able to recover damages through FINRA arbitration.

See this for our prior investigations of cases involving Annuities

The Financial Industry Regulatory Authority (FINRA) is the agency that licenses and regulates stockbrokers and brokerage firms. FINRA requires brokers and brokerage firms to report customer complaints and disputes as well as regulatory sanctions. In addition brokers are required to disclose certain financial matters such as personal bankruptcies, judgments and liens

With offices in Boca Raton, FL and Austin, TX, stockbroker fraud attorney Bob Rex provides representation to investors nationwide who are seeking recovery of investment losses due to the negligence or fraud of stockbrokers, financial advisors, and broker dealers.

If you have questions about how your account has been handled, call (877) 224-3199 to speak with an experienced securities attorney at no cost to you.

Most cases are handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.

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