Variable annuity exchanges are very common yet rarely good for investors, according to an article entitled "No Surrender" in the November 29, 2004, issue of Forbes. The article, written by Carrie Coolidge, first advises investors to steer clear of variable annuities and, in the second place, not to make an exchange. "If you already have one, don't switch it for yet another model without researching the costs," the author cautions.

Even in the face of criticism from the SEC and the NASD and a new mission by New York Attorney General Eliot Spitzer to examine insurance sales policies, exchanges are still rampant, creating the recipe for an "interesting fight," Coolidge writes.

Coolidge characterized variable annuities as appropriate "for only a sliver of the investing public" because investors trade the capital gains rate for tax-free accumulation and then the much higher income rate.

Furthermore, exchanges lock investors in with another surrender charge period. Of course, exchanges can be good for customers, but too often they are motivated by commissions, Coolidge charged, commenting: "It's uncommon for a salesman-pitched product to offer better terms. The salesman's hefty commission comes from the customer's pocket."

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