The Lure and Abuses of Variable Annuities

The Wall St. Journal has a front-page article on the aggressive marketing of variable annuities to the worldwide aging population.  The article focuses primarily on the difficulties insurance companies (because of their insurance component, variable annuities are a hybrid of an insurance product and a security) have in predicting the longevity of their customers and how much in reserves to set aside for these payments.   Midway through the article, however, the dirty little secret of variable annuities is examined.  These are very expensive and very convoluted investments that are being oversold by brokers, frequently to persons for whom they are not a suitable investment.  NASD has brought more than 350 disciplinary actions for improper sales practices in selling variable annuities.  There is currently before the SEC a proposed rule to require advisors to receive training in variable annuities and for managers to review all variable annuity contracts.  See WSJ, As Boomers Retire, Insurers Aim to Cash In.