Variable Annuities Lawyers — Bakhtiari & Harrison

Written and reviewed by

David Harrison, Partner — Bakhtiari & Harrison

Admitted: CA | NY · Super Lawyers 2015–2026 · Former NYC Assistant District Attorney · Former Morgan Stanley In-House Counsel · Series 7 Licensed · Last reviewed: May 2026

Bakhtiari & Harrison represents investors in variable annuity fraud and unsuitable annuity recommendation claims in FINRA arbitration nationwide. Variable annuities are the single most complained-about investment product in the FINRA arbitration system — and for good reason. They combine the highest commissions in the retail investment industry with a fee structure that systematically erodes investor returns, surrender periods that trap investors for up to 10 years, and sales practices that routinely misrepresent the product’s costs, risks, and suitability. David Harrison is a former Morgan Stanley Dean Witter in-house counsel who began his career as a Series 7-licensed registered representative at Shearson Lehman Brothers. Investor cases are handled on a contingency fee basis — no recovery, no fee.

Why variable annuities generate so many investor claims

Variable annuities are insurance contracts that allow investors to invest in mutual fund sub-accounts on a tax-deferred basis, with optional features including guaranteed income streams, death benefits, and principal protection riders. On paper, these features sound attractive. In practice, the product is so loaded with fees, surrender charges, and complexity that it is suitable for a very narrow range of investors — and is routinely recommended to investors for whom it is wholly inappropriate.

The fundamental economics of variable annuity sales explain the problem. Variable annuities typically pay brokers commissions of 5-8% of the invested amount — the highest commission in the retail investment industry. A broker who places a $500,000 retirement account into a variable annuity earns $25,000-$40,000 in upfront commission. The investor, meanwhile, is locked into a product with total annual costs of 2-4% that will take years of tax-deferred growth to overcome — if it ever does.

The full cost of a variable annuity

Mortality and expense (M&E) risk charges: typically 1.0-1.5% annually — the core insurance charge that compensates the insurance company for the guarantees embedded in the contract.
Administrative fees: typically 0.10-0.30% annually.
Sub-account management fees: the mutual fund expenses within the annuity, typically 0.50-1.50% annually — often higher than the equivalent stand-alone mutual fund.
Rider fees: each optional guarantee (guaranteed minimum income benefit, guaranteed minimum withdrawal benefit, enhanced death benefit) adds 0.25-1.50% annually.
Surrender charges: if the investor withdraws more than 10% annually during the surrender period (typically 6-10 years), surrender charges apply — often starting at 7-8% in year one and declining by 1% per year.

Total all-in annual costs for a variable annuity with income riders commonly range from 3-5% per year. For a $500,000 account, that is $15,000-$25,000 in annual fees — every year, regardless of performance.

Common variable annuity misconduct claims

Unsuitable recommendations: variable annuities are generally unsuitable for elderly investors who need liquidity, investors already in tax-advantaged accounts (IRAs, 401(k)s) where tax deferral provides no additional benefit, investors who cannot afford the annual fee drag, and investors with short time horizons.
Switching and churning: brokers who recommend surrendering one variable annuity to purchase another — generating a new commission while restarting the surrender period — commit one of the most consistently enforced violations in FINRA arbitration.
Misrepresentation of guarantees: the “guaranteed” income and death benefit provisions in variable annuities are frequently misrepresented as stronger, more certain, or more valuable than they actually are.
IRA and 401(k) replacement: recommending the use of IRA or 401(k) assets to purchase a variable annuity provides no additional tax benefit (the account is already tax-deferred) while adding all of the annuity’s costs and surrender period — a particularly egregious form of unsuitable recommendation.

FINRA Rule 2330 — enhanced suitability requirements

FINRA Rule 2330 imposes specific suitability and supervision requirements for variable annuity recommendations — requiring not only broker-level suitability analysis but also principal review and approval before the variable annuity application is submitted. When a principal approves an unsuitable variable annuity recommendation, both the broker and the supervising principal may face liability, and the firm faces independent failure-to-supervise liability.

Frequently asked questions — variable annuities

My variable annuity is in my IRA — is that a problem?

Potentially yes. Placing a variable annuity inside a tax-advantaged IRA or 401(k) provides no incremental tax benefit — the account is already tax-deferred. The investor bears all of the annuity’s costs (M&E charges, administrative fees, sub-account fees, rider fees) for a tax advantage they already had for free. FINRA has consistently found that this type of recommendation is presumptively unsuitable unless the broker can articulate a specific non-tax benefit to the annuity. variable annuities

My broker switched me from one variable annuity to another — is that actionable?

Yes, frequently. Annuity switching — surrendering one variable annuity to purchase another — is one of the most common and most clearly actionable forms of variable annuity misconduct. The broker generates a new commission, the investor pays surrender charges on the old annuity and restarts the surrender period on the new one, and the investor is typically no better off (and often worse off) than before the switch.

Can I get out of my variable annuity?

You can surrender a variable annuity at any time, but if you are within the surrender period you will pay surrender charges. The free withdrawal provision (typically 10% per year) allows limited penalty-free withdrawals. Before surrendering a variable annuity, contact Bakhtiari & Harrison — if the annuity was unsuitable, you may be able to recover the surrender charges and other damages through FINRA arbitration rather than simply absorbing the cost of exit.

How do I know if my variable annuity recommendation was unsuitable?

Warning signs include: the annuity was purchased inside an IRA or 401(k); you were over 70 at the time of purchase; you needed the money within the surrender period; your broker did not clearly explain the total annual fees; you were switched from one annuity to another; or the purchase replaced a simpler, lower-cost investment. Bakhtiari & Harrison evaluates all variable annuity claims at no charge.

For a full overview of the firm’s investment product failure practice, visit the Product Failure page.

Contact a variable annuities lawyer — free consultation

Contact Bakhtiari & Harrison for a free, confidential consultation. Our FINRA attorneys evaluate every potential investor claim at no charge. Investor cases are handled on a contingency fee basis — no recovery, no fee.

Investor cases are handled on a contingency fee basis — no recovery, no fee.

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