What You May Not Know About Transfers
Are you unhappy with your current variable annuity performance and thinking of transferring it to one you hope will perform better?
If so, be aware that even if you execute a 1035 Tax-Free Exchange (or qualified transfer in the case of IRAs)you may still have a large surrender penalty to make this move! Make sure this change will be in your best interest. This is such a misunderstood impact for consumers that it has come to the attention of the Financial Industry Regulatory Authority (FINRA — the agency that governs variable annuities along with your respective State Department of Insurance). FINRA frowns on many, if not most, variable annuity exchanges, deeming them unnecessary and in the interest of the financial advisor rather than the investor.*
The good news is that your existing variable annuity may be worth keeping! Just because you may have had an unpleasant experience in your current variable annuity doesn’t mean that it isn’t performing or couldn’t perform better for you. Why? Because a variable annuity is made of many (often dozens) of fund sub-accounts (similar to the way mutual funds are structured, but not exactly the same, with similar management strategies). If the sub-accounts that you are in have performed poorly, you may be able to make a few adjustments in your current variable annuity and avoid the penalties associated with replacing it with a different variable annuity.
At Annuity FYI, we consider transferring a variable annuity to be a last resort, even though there are a lot of new and interesting variable annuity products and riders on the market (which may not be available in all states). Prior to transferring your variable annuity, feel free to contact Annuity FYI at 866-223-2121 to discuss whether a transfer may be in your best interest. Or click here to contact us by e-mail.
*A few of the concerns FINRA has noted include, but are not limited to:
- Does the consumer have a death benefit or living benefit that is greater than the surrender value prior to the annuity being replaced?
- f there are surrender charges, what are they, expressed as both a dollar amount and a percentage?
- How long has the variable annuity been held?
- What are the fees (Mortality, Expense, Administrative, Benefits, Sub-Accounts, and Asset Allocation Model Fees) of the new / proposed variable annuity as compared with the existing one?
- s a bonus product being proposed to make up for any surrender charges or as an incentive to move your current variable annuity? If so, what is the surrender charge compared to the fees from #4 above?
- What is the age of the person to whom this recommendation is being made? FINRA believes that above age 75 the benefits of a variable annuity diminish greatly. While at Annuity FYI we know of a few variable annuities that might make sense for older investors, we generally agree.
This web page has been reviewed for compliance.
Document reference: #1500286-1