What Did Your Brokerage Firm or Investment Adviser Do Wrong With GWG
Published On: June 23, 2020

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with unscrupulous investment brokers selling risky variable annuities.

Variable annuities are hybrid products that combine mutual funds within an annuity “wrapper.” As a retirement savings vehicle, you can invest in a variety of stock, bond and other funds that compound earnings tax free. Unlike “fixed” annuities, which pay a set rate of return and a guaranteed monthly payment, variables are not focused on guaranteed income and performance is based on market returns, so you could lose money. Both products provide a death “benefit,” that is, a lump-sum payment to survivors when the annuity holder dies.

The main reason variable annuities are often a bad deal for retirement investors is they are extremely expensive to own. In addition to sales commissions, mutual fund managers levy fees. There are also insurance-related expenses, riders, and other fees that act as a drag on return. Brokers often tout the tax “benefit” of owning a variable annuity, but then sell then to investors in their IRAs, which is a huge problem.

Issuing insurance companies also lock investors into annuities through “surrender” charges, which impose steep penalties for withdrawing money from the vehicle in the first six to eight years. You pay dearly because your money is tied up. All of these charges, of course, eat into your investment and eventual retirement income, although broker-dealers may not disclose the full adverse financial impact of owning these vehicles. They are making billions of dollars of income from selling them to unsuspecting investors.

Because of the high commissions and onerous layers of fees within variables, brokers aggressively sell them as retirement products, although there are several lower-cost products on the market that could generate more income for retirees. Industry regulators have long warned future retirees of the perils of buying variables.

According to a FINRA Investor Alert, “as its name implies, a variable annuity’s rate of return is not stable, but varies with the stock, bond, and money market subaccounts that you choose as investment options. There is no guarantee that you will earn any return on your investment and there is a risk that you will lose money.” FINRA is the primary regulator of broker-dealers.

Since excessive marketing of variables has been an ongoing problem for decades, regulators have fined broker-dealers repeatedly for sales abuses. An elderly upstate New York couple, for example, was awarded $3.2 million in a FINRA arbitration case last year. The couple alleged that an AXA Advisors broker made five transactions to sell annuities that produced large commissions, “but were damaging to the couple’s assets and estate plan.” An AXA spokesman at the time stated “We do not condone any actions by this individual which were inconsistent with our policies and values. We remain committed to serving our clients.”

Variable annuity abuses have been widespread and often targeted by state and national regulators. Many of the irregularities involve fraud, where brokers mislead their clients about the nature and risk of the products. In 2016, for example, the State of Massachusetts sued LPL Financial, the largest U.S. independent broker-dealer at the time, alleging one of the company’s brokers “defrauded his clients, lied to his supervisors, and fabricated client financial suitability profiles, in order to enrich himself and LPL by selling scores of identical, illiquid and high-commission variable annuities.”

Brokers also fraudulently prey on senior citizens with mental disabilities or who are terminally ill, then set up contracts that will pay them (the brokers) benefits when they pass away. “Seniors with dementia and Alzheimer’s – people who already may struggle to make financial decisions – mistakenly trust an agent with too much financial information and control,” according to annuity.org.

Stoltmann Law Offices have represented over one hundred investors in claims against  brokerage firms involving variable annuities. If you invested with a broker and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!


The posting on this site are mere OPINIONS and NOT statements of fact in any way whatsoever. The information should not be relied upon and there have been no findings made against the firms or individuals referenced on this site. In addition, this Blog is made available for educational purposes only and incorporates information from the web as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney client relationship between you and Stoltmann Law Offices (161 N Clark Street 16th Floor Chicago, IL 60601). The Blog opinions should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.


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