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SEC Fines RiverSource Distributors $5 Million for Ameriprise Variable Annuity Exchanges

The SEC fined RiverSource Distributors $5 million following a complaint that RiverSource Distributors violated Section 11 of the Investment Company Act when they allowed their sales representatives to push variable annuity exchanges on Ameriprise customers. Variable annuity exchanges can be costly to the investors while providing lucrative commissions for salespeople.

FINRA Rule 2330 requires brokers to carefully explain the potential costs associated with variable annuity exchanges to their investors. If you worked with an Ameriprise broker who recommended that you exchange your variable annuity, you should speak with an investment lawyer.

For more information on investor rights and variable annuity exchanges, keep reading.

What are Variable Annuities?

Variable annuities are complex investment vehicles. They are insurance contracts that invest your premium in a portfolio of securities. The value of your policy depends on those securities’ performance.

Variable annuities are intended to be held for a long period and investors often must pay a fee to exchange them or surrender them early. This makes them illiquid, meaning that investors should only purchase variable annuities with money they will not need in the short-term.

What Are the Risks Associated with a Variable Annuity Exchange?

Variable annuity contracts are complex and difficult for even experienced investors and financial professionals to understand.

Brokers should always clearly explain the following factors to their investors:

  • There are fees associated with the early surrender or exchange of a variable annuity.
  • A variable annuity exchange may come with tax consequences.
  • In addition to fees, investors must also consider the risk associated with the underlying investments.
  • Variable annuity exchanges or surrenders could result in the loss of the add-ons like death benefits.

Questions Brokers Should Ask About a Deferred Variable Annuity Exchange

For a variable annuity exchange, a broker should consider the following:

  • Will the customer incur a surrender charge?
  • Would they be subject to a new surrender period?
  • Will the customer be subject to increased fees or charges?

Brokers should also consider if they have had another deferred variable annuity exchanges within the preceding 36 months.

Variable Annuity Exchanges and Section 11 of the Investment Company Act

River Source Distributors underwrote variable annuities, and Section 11 prohibits underwriters from making an offer to exchange one variable annuity for another except under very limited circumstances or with approval from the SEC.

Variable Annuity Exchange: Rules and Regulations

FINRA also has regulations in place that prohibit the recommendations of variable annuity exchanges that do not fit the investor’s needs.

Variable Annuity Exchanges: FINRA Rule 2330

FINRA Rule 2330 requires that brokers inform their investors of variable annuity features, including:

  1. Potential surrender period and surrender charge
  2. Potential tax penalty if the investor sells or redeems their variable annuity before age 59 ½.
  3. Mortality and expense fees
  4. Investment advisory fees
  5. Potential charges for riders
  6. Features of riders (like death benefits)
  7. Market risks of investments

Suitability: FINRA Rule 2111

FINRA Rule 2111 requires brokers to have a reasonable basis to believe that a recommended variable annuity and the underlying investments are suitable for the investor, based on the investor’s profile. During the relevant period, RiverSource Distributors generated the bulk of its revenue from variable annuities.

RiverSource and Ameriprise Variable Annuity Exchanges

RiverSource salespersons earned commissions from exchanging variable annuities. According to the SEC, RiverSource sales representatives would color code lists of variable annuities held by Ameriprise customers to identify investors with active variable annuities that would generate a commission for RiverSource Distributors salespersons if exchanged.

From 2015 to 2018, variable annuity sales increased substantially. The SEC alleges that this increase likely resulted from the use of these lists to target customers for exchanges.

What Can Investors Do if They Suffered Losses Following a Variable Annuity Exchange with Ameriprise?

Lawyers at Kurta Law offer free case evaluations. Variable annuities are complex contracts, but an experienced investment lawyer will make the road to recovery as straightforward as possible. Call (877) 600-0098 or email