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Arbitration Hearings in Financial Industry Down from 2008 Highs – With Exception of Annuities

Wednesday, January, 15, 2014


During the 2008 financial crisis and immediately afterward there was a huge uptick in the number of arbitration requests being filed by financial customers against brokers and financial houses.  In recent months, the number of such filings has dropped back to normal pre-2008 rates for almost all products and situations – with the lone exception of Variable Annuities, a complex product that continues to see record rates of formal complaints, lawsuits and arbitration hearings.


Variable annuities in the simplest are a form of insurance product, requiring upfront investment with a guaranteed payout in the future that can increase if investments do well, but never decrease past the guaranteed point.  They are often sold as guaranteed income products.  While they do have their champions and their legitimate uses, their complexity means that brokers often get large bonuses for selling one, and this leads to misleading and often borderline illegal tactics.  A common complaint is that brokers often sell them to elderly clients who won't live long enough to see the benefit.


In fact, many financial institutions have come up with euphemisms for the products because the term “annuity” has been tarnished by frequent criticism.  It’s also an open secret among brokers that arbitration panels under the Financial Industry Regulatory Authority (FINRA) often automatically rule against brokers when the subject of the hearing is annuities, because they believe the products are too complex for ordinary people to understand.


With the financial crisis and the volume of arbitrations for other products and practices receding, most observers expect FINRA to tackle annuities and their regulation sometime this year to try to remedy the worst aspects of them.