Arbitration of Variable Rate Annuities
Variable annuities are usually broken down into two broad categories: immediate and tax-deferred annuities. With an immediate annuity, a lump-sum deposit is made and the insurance company guarantees an immediate monthly payment until your death. The monthly amount is based on your life expectancy.
Tax-deferred annuities allow you to invest your money and watch it grow tax-deferred until you decide to take it out. A tax-deferred annuity can have a fixed rate, or it can be a variable product with sub-accounts.
The SEC has issued guidance to ensure that Wall Street and other financial services firms only market variable rate annuities to customers that can take advantage of the tax deferral offered by variable annuities. Also, many advisors recommend high risk subaccounts. Many advisors ignored suitability requirements and went ahead and sold these products to retirees and other investors who relied on their investments to support their lifestyles.