In October a law firm in Chicago representing a former client of a financial advisor ran an ad seeking to find other investors who may have lost money with this particular advisor as a result of “annuity switching.”
The advisor is accused of improperly switching the former client from indexed annuities to variable annuities, causing the client to incur substantial surrender charges, and allegedly mismanaging the transfer of the client’s funds, resulting in substantial tax liability and penalties in addition to the surrender charges.
Law firms seeking to identify and represent other clients in cases such as this are becoming increasingly common in today’s litigious environment. The law firms offer no-cost reviews to see if an arbitration claim or lawsuit might be an option for recovering investment losses and related damages.
Whether or not the financial advisor in question is guilty of these allegations, the situation underscores the importance of the need for advisors who sell annuities to take the necessary steps to protect themselves when recommending an annuity to a consumer, and particularly when it involves liquidating one annuity in favor of another annuity.
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The NAIC’s 2010 Suitability in Annuity Transactions Model Regulation requires that producers be trained on the provisions of annuities in general, and the specific products they are selling. The producer must make “reasonable efforts” to obtain the consumer’s suitability information, and have reasonable grounds to believe the transaction being recommended to the consumer is suitable.
And your efforts need to be very well documented.