Skip to Content

With No Fiduciary Rule To Worry About, Wall Street Can Push Annuities With Reckless Abandon

November 6, 2018 Blog

Variable annuities have long been a retirement investment product which Wall Street pushed on Main Street customers to generate fees and commissions, commonly 6% of the amount invested.

That means if a client buys a variable annuity from a broker for $100,000, the broker is paid a whopping commission of $6,000.

When comparing those fees to the amount brokers charge for managing an account on an annual basis or even trade commissions, the 6% is a staggering number.  For an investor to make any money, the investments would have to exceed 6% which would entail a high degree of risk and a great deal of success.

And the one regulation that constrained brokers from jamming these products down clients’ throats is no longer an impediment.

Annuities associated with “steak dinner sales pitches are flourishing thanks to the death of the regulation once expected to curtail it,” according to a recent Wall Street Journal article. “Annuities sales totaled $59.5 billion in the April to June period, the highest since late 2015.  Sales are expected to remain strong to at least the end of the year.”

The sales boom shows how Washington’s push to roll back financial regulations is giving new life to products that industry watchdogs say aren’t always good for investors, according to the Journal. Indeed, the annuities resurrection stems from the death of the Department of Labor’s fiduciary rule, an Obama proposal that would have required brokers who oversee retirement savings to act in their clients’ best interests.

“Customers pay a lump sum to an insurance company, then can effectively get back their money, plus a potential return for a said number of years, or their lifetime, in regular payments.  In some cases, buyers can win if they live longer than expected but lose if they don’t.  They also can pay hefty penalties if they withdraw money early.”

President Trump’s Securities and Exchange Commission, ever faithful and friendly to Wall Street, killed the fiduciary duty rule which required brokers to put customers’ interests first.  In its place, rather than having any requirement that firms and brokers make meaningful disclosure to investors,  all that is required under the new rule is a “summary prospectus,” a cliff notes version of the actual prospectus be sent to investors.

What a joke. Sales of annuities are taking off because Republicans killed Obama-era safeguards. Brokers are ginning up fees from annuities. As the stock market see-saws, expect more investor losses in variable annuities in the coming years. And those will be followed by investment fraud lawsuits to recover the losses on these complex and opaque high-fee products.

Zamansky LLC is a New York law firm which represents investors in court and arbitration cases against securities brokerage firms and issuers.  The firm may represent investors in cases against companies mentioned in this blog.  Zamansky LLC also represents investors in arbitration cases against UBS and other brokerage firms regarding Puerto Rico bonds and UBS closed end bond funds and other investments.