Unethical behavior and/or sales practices

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Jul 2, 2008 1:42 pm

Spiff, I think you're right.  I have had to grapple with Valic, and they are nothing like the AIG/Sun America side (are they even he same company??).

 
I find Valic mostly with teachers/former teachers.  Reminds me of dealing with AXA/Equitable also.
Jul 2, 2008 2:26 pm

 I came across two Index life insurance  policies.



Same client had a rep put 100% of an IRA rollover $137,000 into a hotel being built in a foreign country.


How do these reps get away with this stuff?
These reps give all of us a bad name.
Jul 4, 2008 3:21 am

AIG Valic is completely different from AIG/Sun America and all the other step children of AIG.  The problem is that VALIC was once a low cost, competitive provider, but when AIG bought them up (back in the late 90s if I remember), they didn't like the direction they were going (full service financial products, dual b/ds with LPL, etc...); this costs too much money for AIG.  So here's what they did:

Right after Hank Greenberg stepped down at AIG, there was a big national conference with all the VALIC reps to do some cheerleading and to try to bring some cohesiveness to the new AIG/VALIC merger.  Sullivan came in and, in front of nearly 800 of the top producers, told them all to "lock up you clients", "get them into the fixed annuities," "net flows".  Everyone in the room was completely shocked; this is not why people become financial advisors.  This was around 1999-2000.  Since then it's been a tragic downward spiral for VALIC. 

AIG/VALIC is in defense mode (sort of like HAL-9000).  They are turning off the life support of all their reps, cutting their pay if they can't produce, screwing their clients, hiring anyone with a pulse in back-office, and pissing off just about everyone in the industry.  My guess is that they will sell the whole part of VALIC in the next year or two.  You can find plenty of ex-managers, ex-reps who are plenty fed up (and involved in plenty of class actions, private settlements against them).  There are a few big names here in CA who have fought Valic, done the non-compete lawsuit, and won back their clients and $100s of millions in assets.  There are plenty of reps who are not going to watch this company make a complete mockery of the profession. 

So if you've got clients with "AIG retirement" please don't give up!  Get them the hell out of there. 

Jul 4, 2008 4:10 pm

iceco1d, thanks for your response.  It is the AIG paperwork that we sent to them and it was the original.  My client was with me and we filled out the paperwork together with an AIG rep on the phone so that we could be sure that we were doing it correctly. 

Jul 8, 2008 4:44 pm

I had a 77 yr old client in here yesterday that showed me her 122m IRA all in a fixed annuity with a 10 yr surrender sold in 2000 from a Physicians Mutual agent.  The agent from Physician's now works for some podunk insurance firm and asked her to move her IRA into a new annuity at his new firm for "No cost!" He didn't mention the 4% surrender to her on the old contract or the new 10 yr surrender chart.  Thank God she came to show it to me before she bought it.  I think Physician's Mutual is probably the worst outfit I've seen so far and thats saying a lot after seeing stuff from AXA, Ameriprise, and Thrivent/AAL

Jul 9, 2008 11:53 am

Advisor wanted to allocate 20% to "alternative" investments.  He bought some hybrid funds, absolute return funds, and Mega Millions Lottery tickets to round out the portfolio.  All lottery winnings would be spread out over all accounts based on the percentage of tickets they bought. 

Jul 9, 2008 4:21 pm

Wow these are some nightmares!

 
Maybe I should ask this question on another thread but here it goes.
 
What would clean up this profession?
Jul 9, 2008 5:00 pm

Ways to clean up the profession:


 
(1) require the sellers of EIA's to get securities licensed
(2) Put a limit on what the maximum cdsc charge can be
 
Jul 10, 2008 12:16 am
For annuities, this is what I would suggest:
 
1.  Disclose, in bold font, commission paid to brokers on annuities that a client must sing off on.
2.  Disclose, in bold font, all expenses added together for M&E, administration, all riders, and average internal expenses for funds in variable annuities that a client must sign off on.
3.  Disclose, in bold font, the probability that a fixed annuity bought from a bank or insurance agent with a great rate the first year will drop near the floor the next year and have the client sign off on it.
4.  Ban all index annuities.
5.  Discose, in bold font, that a GMIB or GMWB is not a guaranteed rate of return on the principal each year, but simply a rider, and have the client sign off on it.
6.  Reduce the surrender period on all annuities to 5 years or less and reduce the CDSC.
7.  Outlaw all "Senior Designations" as well as "scare tactic" seminars.
 
These seven ideas would be a good start to clean up the annuity business.
Jul 10, 2008 10:02 am

The problem is the bad eggs and not the products.  I've never sold an EIA, but I don't have a problem with them.  


An EIA is no more of a security than any other fixed annuity or a CD. 


Commissions should not have to be disclosed.  They have no relevance.  If a client buys XYZ product from me and I earn a commission of 3% and you earn a commission of 1% on the same product, how does this effect the client?  It doesn't.  


Index annuities make sense for people who want no investment risk and would like the opportunity to earn more money than they can in other fixed investments.
 
Reducing the surrender period, reduces the guarantees that can be given.  It can hurt clients.
 
Bottom line:  Go after the bad eggs and not products.
 
EIA's are not good or bad products.  They are either appropriate or inappropriate based upon the situation.
Jul 10, 2008 11:13 am
rankstocks:
For annuities, this is what I would suggest:
 
1.  Disclose, in bold font, commission paid to brokers on annuities that a client must sing off on.
 
If you are going to be consistent, then you better let your client know that you made a $20,000 commission on that life insurance policy you 1035 over, and they need to know about the $50 you make every time they sign up for the credit card.  You also should probably let them know that you are short $10,000 in the taxable income catagory but have made your tax free income catagory for your diversification trip, and that you need an additional $5,000 in GDC this week to keep yourself at exceeding expectations. 
 
Or we could agree that all of these things are kind of but not really relevant.  If I disclose all the costs (which I do), how does it affect the client if I make $50 or $50,000?
 
2.  Disclose, in bold font, all expenses added together for M&E, administration, all riders, and average internal expenses for funds in variable annuities that a client must sign off on.
 
I do this on a separate form that the client has to sign.
 
3.  Disclose, in bold font, the probability that a fixed annuity bought from a bank or insurance agent with a great rate the first year will drop near the floor the next year and have the client sign off on it.
 
I would love to see this.
 
4.  Ban all index annuities.
 
Overstated, but overall on the right track.  If you make change #6, then much of my objection to EIA's goes away.  The real problem is the 80 year old who still has 12 years left on their surrender schedule.  A 5 year surrender schedule also eliminates the 10%+ commissions.
 
5.  Discose, in bold font, that a GMIB or GMWB is not a guaranteed rate of return on the principal each year, but simply a rider, and have the client sign off on it.
 
I would love to see this added to my form. 
 
6.  Reduce the surrender period on all annuities to 5 years or less and reduce the CDSC.
 
I would make an exception for fixed annuities with a firm fixed rate.  Otherwise, I agree.
 
7.  Outlaw all "Senior Designations" as well as "scare tactic" seminars.
 
I don't know how to outlaw "scare tactic" seminars, but if you know please do it immediately. 
 
These seven ideas would be a good start to clean up the annuity business.
 
For whatever it's worth, my $0.02.  I would also add:
 
8.  ANYTHING that has ANY ties on rate/surrender/etc. to the stock market (read EIA's) is a security.
 
9.  Prohibit 100% upfront commission on annuities.  It doesn't have to be like a C share mutual fund, but if one of the payout options is 8% upfront and then no trail, guess who gets no service?  Give the broker some incentive for providing continuing advice.  I see these people all the time, their broker sold them a $200,000 annuity, and now won't return their call.  Even the $200 provided by a .1 trail would help, I would be ok with a .25 trail like on mutual funds.
 
Jul 10, 2008 11:31 am

You guys are aware that all of this information is in the prospectus and that the client is free to read it. And don't try the "they don't read it, anyway" defense. If they don't read it, THEY chose not to know what it says.

I'm sorry that rankstocks doesn't think that he can be honest without MORE regulation. That doesn't mean that the rest of us are just like him. Only pikers sit around, fretting over what other people are doing. Did you come into this business to clean up the industry or to make a great living and help a lot of people?

Jul 10, 2008 12:24 pm
henryhill:

Ways to clean up the profession:


 
(1) require the sellers of EIA's to get securities licensed
(2) Put a limit on what the maximum cdsc charge can be
 
 
1)  EIAs are not an investment.  Why would you force producers to have a securities license?
2)  So, why would liquidity for a spendthrift would be a good thing?
Jul 10, 2008 12:32 pm
rankstocks:
For annuities, this is what I would suggest:
 
1.  Disclose, in bold font, commission paid to brokers on annuities that a client must sing off on.  Does your supermarket tell you their mark up and profit on the stuff they sell?
2.  Disclose, in bold font, all expenses added together for M&E, administration, all riders, and average internal expenses for funds in variable annuities that a client must sign off on.  I don't have a problem with this
3.  Disclose, in bold font, the probability that a fixed annuity bought from a bank or insurance agent with a great rate the first year will drop near the floor the next year and have the client sign off on it.  So, you are suggesting insurance companies predict what future interest rates will be?  Are you retarded?
4.  Ban all index annuities.  What is your reasoning for this?  Do you want to ban all fixed annuities as well?
5.  Discose, in bold font, that a GMIB or GMWB is not a guaranteed rate of return on the principal each year, but simply a rider, and have the client sign off on it.  I agree with this one.  Most producers really don't understand how these work.  Maybe better education by the product vendors would help.  Actually, I know it would.
6.  Reduce the surrender period on all annuities to 5 years or less and reduce the CDSC.  Why is liquidity a good thing for everybody?  You give more liquidity, you lose guarantees.  Simple as that.
7.  Outlaw all "Senior Designations" as well as "scare tactic" seminars.  Emotion gets a client to act.  Logic does not.  As far as designations go, there is no guarantee a CFP will be any more or less honest than one who has, say, a CSA.  Nice try.
 
These seven ideas would be a good start to clean up the annuity business.
 
For someone who seems to have been in the business for a while, you have no clue how it really works.  Not that I'm shocked at all about it, but this boilerplate complaining has no real basis for discussion. 
Jul 10, 2008 12:39 pm

BIGGEST problem with all annuities (specifically EIA's and income riders) are that almost every client/prospect/friend, etc that I talk to that has one says the same thing....."Oh I just get 7% guaranteed.  Doesn't matetr whether the market goes up or down, I always get 7%.  That's MUCH better than what the market is doing now!"

 
Uhhhh, no.  You try to explain the riders, the income base guarantee (versus the account value), the floors and ceilings on return, the fees, etc.  It just goes in one ear and out the other.  They INSIST that there are no commissions or fees, and that the value jsut goes up 7% in perpetuity every year, guaranteed.  If that was the case, I would have ALL of my money in 7% guaranteed, tax deferred investments.
 
Annuities are not bad if you know EXACTLY what you are getting (which is rare).
Jul 10, 2008 12:57 pm
B24:

BIGGEST problem with all annuities (specifically EIA's and income riders) are that almost every client/prospect/friend, etc that I talk to that has one says the same thing....."Oh I just get 7% guaranteed.  Doesn't matetr whether the market goes up or down, I always get 7%.  That's MUCH better than what the market is doing now!"

 
Uhhhh, no.  You try to explain the riders, the income base guarantee (versus the account value), the floors and ceilings on return, the fees, etc.  It just goes in one ear and out the other.  They INSIST that there are no commissions or fees, and that the value jsut goes up 7% in perpetuity every year, guaranteed.  If that was the case, I would have ALL of my money in 7% guaranteed, tax deferred investments.
 
Annuities are not bad if you know EXACTLY what you are getting (which is rare).
 
B24, I agree that some advisors don't explain the rider correctly.  BUT, for as difficult as it is for some advisors to understand this, it's 10x harder for their clients.
 
I feel I do a great job explaining the differences between contract value and the rider, but it is extremely difficult for clients to understand.  Some get it, some don't. 
 
The sad thing is when you see someone you know that needs and annuity and they don't understand it well enough to do it.   
Jul 10, 2008 1:01 pm

8.  ANYTHING that has ANY ties on rate/surrender/etc. to the stock market (read EIA's) is a security.


By this definition, is a bond no longer a security?  I assume that you don't mean that.  In reality, based upon this definition, virtually everything is a security.   What determines the rates on fixed insurance products?  The general account of the insurance company.  This general account invests in securities.  Where does money that get invested in fixed annuities go?  Primarily the general account of the insurance company.  Where does the money for an EIA go?  Primarily the general account of the insurance company.   The same can be said for CD's, etc.
 
An EIA is a fixed annuity.  It simply has a different crediting method than other fixed products.  If an EIA is a security, all fixed products are securities.
 
 
9.  Prohibit 100% upfront commission on annuities.  It doesn't have to be like a C share mutual fund, but if one of the payout options is 8% upfront and then no trail, guess who gets no service?  Give the broker some incentive for providing continuing advice.  I see these people all the time, their broker sold them a $200,000 annuity, and now won't return their call.  Even the $200 provided by a .1 trail would help, I would be ok with a .25 trail like on mutual funds.
 
What kind of incentive does the broker have to give continuing advice if there is a trail?  He gets paid regardless.  The commissions are for selling the product.  The broker doesn't get paid to give advice.  The last thing that we need is more rules.  Rules don't stop crooks.  They just hurt the honest people. 
 
 
BIGGEST problem with all annuities (specifically EIA's and income riders) are that almost every client/prospect/friend, etc that I talk to ...
The last time that I checked, annuities don't speak.  The problem isn't with the product.  The problem is with those who are selling them and those who are buying them without understanding what they are buying.
 
Jul 10, 2008 1:10 pm
anonymous:

 BIGGEST problem with all annuities (specifically EIA's and income riders) are that almost every client/prospect/friend, etc that I talk to ...


The last time that I checked, annuities don't speak.  The problem isn't with the product.  The problem is with those who are selling them and those who are buying them without understanding what they are buying.
 
 
Agreed Anon, 100%.
 
I was talking to my sister-in-law last night, a dental hygenist.  I was blown away by the amount of specific course work and cost to become a dental hygenist.  You have at least 2 years of tough coursework on top of basic underground courses.  The dental hygene program costs about $25,000-$30,000 and has a tough selection process.  All to work on your teeth.
 
I'm talking to her and thinking, you don't even have to graduate college to be a rep.  You just have to cram for a test for 3 months. 
 
Maybe some of the bad apples selling the good products would be taken care of if ALL financial products paid the same commissions/fees.
 
I am not an advocate of this by any means as it's not fair to those of us that do things the right way.  But from a consumer's standpoint, it might be one solution.
Jul 10, 2008 1:12 pm

i love the insurance agents who drop a 300,000 ticket into a VA one year and then take the 10% each year after that and go to another VA or A share funds, all under the guise of diversification.

also love the ROTH VA's i see with monthly auto contributions by a 28 year old single guy.
or the 150,000 VUL being funded at $50-$75/month.
when i joined my prior b/d i inherited roughly 50-100 annuity contracts all sold by the previous agent.  slowly but surely i saw most of these contracts being moved away, all usually taking 3-8% cdsc's.  most were invested in af subaccounts, but were being moved due to "poor performance" according to current policyholders.  always killed me how policyholders would accept a cdsc after being promised greener pastures elsewhere.
Jul 10, 2008 4:11 pm

So far there has been some good points made.

 
Some that are missing yet.
 
Meeting sales quota's & goals
 
Sales people that can only sell propritary products.
 
My preferance is fee based for all products including  insurance even car and  P&C.
 
But that is my opinion.