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Understanding the Concerns of Investors Purchasing Variable Annuities

Variable annuities are a popular investment product that combines the potential for market-based returns with the security of an insurance policy. While they can offer significant benefits for retirement planning, they also come with a range of costs, fees, and risks that investors need to be aware of. This blog aims to provide a comprehensive overview of the key concerns when purchasing variable annuities, including the associated costs and fees, surrender value considerations, different types of risks, and relevant FINRA regulations. We will also discuss how Bakhtiari & Harrison fight for the rights of investors.

Costs and Fees

Variable annuities are often criticized for their complex and high fee structures, which can erode investment returns over time. The primary costs associated with variable annuities include:

  1. Mortality and Expense Risk Charges: These fees compensate the insurance company for the risks they take on under the annuity contract. They typically range from 1% to 1.25% of the account value per year.
  2. Administrative Fees: These fees cover the administrative costs of issuing and maintaining the annuity. They can vary but are usually between 0.10% and 0.30% per year.
  3. Investment Management Fees: These fees are associated with the underlying investment options, which are similar to mutual funds. These fees can range from 0.50% to 2% annually.
  4. Surrender Charges: If an investor withdraws money from the annuity within a specified period, usually 6 to 10 years, they may incur surrender charges. These charges can be as high as 7% initially and gradually decrease over time.
  5. Rider Fees: Many variable annuities offer optional riders for additional benefits such as guaranteed minimum income or death benefits. These riders come with extra costs, often ranging from 0.25% to 1% per year.

These fees can significantly impact the overall returns of a variable annuity, making it essential for investors to fully understand and consider them before investing.

Surrender Value

The surrender value of a variable annuity is the amount an investor would receive if they decide to cash out the annuity before the end of the surrender period. This value is reduced by any surrender charges and outstanding loan amounts against the annuity. Therefore, investors must be prepared for the possibility that they may not recover their initial investment if they need to access their funds early. Understanding the surrender value is crucial for investors who might require liquidity.

Types of Risk

Investing in variable annuities involves various types of risks, which can be broadly categorized into macro and micro risks.

Macro Risks

  1. Market Risk: The value of a variable annuity is tied to the performance of the underlying investment options, which means it can fluctuate based on market conditions. Poor market performance can lead to significant losses.
  2. Interest Rate Risk: Changes in interest rates can affect the performance of the underlying investments, particularly bond funds within the annuity. Rising interest rates can negatively impact bond prices.
  3. Inflation Risk: Inflation can erode the purchasing power of the future income generated by a variable annuity. Some annuities offer inflation protection riders, but these come at an additional cost.

Micro Risks

  1. Company Risk: The financial health of the insurance company issuing the annuity is critical. If the company faces financial difficulties or insolvency, it may not fulfill its obligations to the annuity holders.
  2. Liquidity Risk: Variable annuities are less liquid than other investment options. Investors may face penalties and surrender charges if they need to access their funds before the end of the surrender period.
  3. Complexity Risk: The complexity of variable annuities can make them difficult to understand fully. This complexity can lead to poor decision-making and unexpected outcomes for investors.

FINRA Rules and Regulatory Notices

The Financial Industry Regulatory Authority (FINRA) provides guidance and regulations to ensure that variable annuities are sold fairly and transparently. Key FINRA rules and notices relevant to variable annuities include:

  1. FINRA Rule 2330: This rule establishes standards for members and associated persons in recommending the purchase or exchange of deferred variable annuities. It requires firms to conduct a thorough suitability analysis and ensure that the annuity meets the investor’s needs and financial objectives.
  2. FINRA Notice to Members 99-35: This notice emphasizes the importance of ensuring that the sale of variable annuities is suitable for the investor and that all material information is disclosed. It highlights the need for firms to have written supervisory procedures to oversee the sale of variable annuities.
  3. FINRA Regulatory Notice 12-03: This notice provides guidance on the supervision of recommendations involving complex products, including variable annuities. It stresses the importance of training, oversight, and the need for firms to understand the features and risks of these products.

These regulations and notices are designed to protect investors by ensuring that they receive suitable recommendations and full disclosure of all relevant information when purchasing variable annuities.

How Bakhtiari & Harrison Fight for Investors

At Bakhtiari & Harrison, we are committed to protecting investors and ensuring they are treated fairly by financial institutions and advisors. Our firm offers a range of services to support investors, including:

  • Legal Representation: We represent investors in disputes with insurance companies and financial advisors, ensuring their rights are protected and they receive the compensation they deserve.
  • Compliance and Regulatory Support: We assist investors in navigating the complex regulatory landscape, ensuring their investments comply with all applicable laws and regulations.
  • Education and Advocacy: We provide educational resources and advocacy to help investors make informed decisions about their investments. Our goal is to empower investors with the knowledge they need to protect their financial future.

Bakhtiari & Harrison has a proven track record of successfully representing investors in claims against firms that fail to properly supervise their financial advisors or engage in deceptive practices. We are committed to fighting for justice on behalf of investors and holding financial institutions accountable.

For more information about how we can assist you, please visit our website at Our team of experienced attorneys is here to help you navigate the complexities of variable annuities and ensure your investments are protected.


Variable annuities can be a valuable component of a diversified investment portfolio, offering potential growth and retirement income. However, they come with a range of costs, fees, and risks that investors must carefully consider. By understanding these factors, adhering to FINRA regulations, and seeking the support of experienced legal professionals like Bakhtiari & Harrison, investors can make informed decisions and protect their financial future.