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Nov 6, 2016 by |

California Variable Annuity Attorney: Kickbacks


Commissions and Kickbacks in the Annuity Market

An oft-quoted truism in the financial industry is that some products are “sold, not bought.” This is especially true of annuities, a type of product that often seems to provide more of a benefit to the ¬¬company than to the consumer. In recent years, the annuity has changed from a rock-solid financial product that promised guaranteed returns based on treasury bonds, into a host of diverse, complex, and fee-laden products that promise market rate returns with “no risk,” a red flag for investors. Since few retirees looking for financial security are likely to seek out a “variable,” “indexed,” “hybrid,” or other annuity type, insurance companies rely on their broker to explain the dubious virtues of these products. And to convince their brokers to sell them, insurance companies offer high commissions and lavish gifts, including iPads, cruises, and vacations to exotic Pacific islands.

This side of the annuity industry was the topic of a report issued by Senator Elizabeth Warren, which documented the tactics that insurance companies and marketing companies were using to reward brokers who sold the largest number of these high-priced policies. Our California variable annuity attorneys have investigated many of these policies, which notably refrain from mentioning the financial rewards the broker receives for selling them, which can be as much as 15% of the total sale price. In addition, the practice of lavishing non-monetary gifts on high producers is not something that insurance companies tend to publicize.

Variable annuities, indexed annuities, and numerous other varieties sold throughout California have any number of flaws that might end up harming seniors and retirees. Often, they contain surrender charges, liquidity fees, management fees, and other costs and rules that are hidden in the 30 page contract that policyholders have to sign. While it is the broker’s job to explain the policy to the client, the afore-mentioned rewards aren’t likely to induce them to be forthcoming about potential problems with the policy, or to recommend less lucrative alternatives.

In response to this problem, a new Department of Labor rule requires that brokers who earn commissions on annuity sales have to assume a fiduciary responsibility to their client. Essentially, this requires that they act in their clients best financial interest. While many consumers have be surprised to learn that brokers weren’t already required to do that, many annuity brokers and insurance companies in California and throughout the country are fighting back against this rule, either by suspending annuity sales, working around commissions, or drafting new language into their contract. Hopefully, a few are actually going to improve training and reduce sales pressure on their brokers, to ensure that they can meet the demands of fiduciary responsibility.

Some of the major annuity and life insurance providers are:

If you or a loved one has purchased an indexed annuity, variable annuity, or other product in California, contact our annuity fraud attorneys at (415) 441-8669, or by email at Our attorneys have experience handling cases involving complex financial agreements and large insurance companies. We can help guide your case through a jury trial or toward an equitable settlement.

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