Have Things Changed At World Financial Group?
In 2007, worldwide earnings for Dutch insurer Aegon NV dropped 20 percent. Profit in the Americas, however, rose 12 percent because of the firm’s little known division, World Financial Group Inc., whose agents sell life insurance, annuities and mutual funds from other Aegon units, as reported by Seth Lubove in a May 28th Bloomberg.com article.
According to the company’s marketing materials, what sets World Financial Group apart from traditional sales forces is its structure. The pyramid-like, multilevel sales organization produces hefty compensation for its agents but not from the sales of products as much as the recruitment of new agents. Agents who garner promotions also get a portion of the commissions earned by new agents they recruit.
World Financial has been accused by securities regulators in Missouri and Utah of misrepresenting investment returns and making unsuitable sales of variable annuities. This annuity controversy has also received attention from state securities officials in Alabama, Iowa, and Minnesota.
Customers have made similar accusations in arbitration claims and have alleged that variable annuities were sold to people too old to realize any benefit before they died. One 74 year-old Utah woman lost hundreds of thousands of dollars in equities after being told by a World Financial broker that she should hang on and focus on long-term investing. Annuities are not for everyone, especially an elderly person with a short investment time horizon. Fees can run as high as 25 percent of the principal if the annuity is cashed in before the end of a waiting period.
As reported on Bloomberg TV on May 7, Aegon CEO Alexander Wynaendts said that the company “put in place very strict regulatory and compliance procedures,” when Aegon bought World Financial. “When you have such large numbers of people out there in the field, it is quite an effort,” Wynaendts added.
Annuities contain investment instruments like mutual funds and an insurance wrapper. The earnings are sheltered from taxes and death benefits are paid to beneficiaries. Fixed annuities promise a set return annually while returns from variable annuities change with market fluctuations. As baby boomers reach retirement age and more companies offer employees self-managed accounts in lieu of company-managed pensions, friction points may grow.
With more than 18,000 licensed brokers and insurance agents, World Financial Group and its World Group Securities Inc. brokerage affiliate have a bigger sales force than Merrill Lynch, whose 16,660 brokers make it the largest on Wall Street. The more new agents who arrive at the bottom of the World Financial pyramid, the more profitable it is for everyone above, especially at the top. An entry-level associate can earn $2,400 a month or $28,800 in commissions annually. An agent in the marketing director position two levels up can earn $22,560 a month.
After five years with the company, Dana Lagattuta is a marketing director. Referring to the ability of agents to recruit new agents in a continuing stream, Lagattuta says, “This system is about duplication.” Aegon pays Lagattuta 10 percent for a new recruit.
Multilevel marketing or direct selling has become an accepted, though controversial, business practice for the sale of products. In contrast to similar multilevel organizations such as the Pampered Chef, Amway Corp., Avon Products, or Herbalife, World Financial wants to invest people's life savings. This has led to disputes by customers who claim they lost significant sums when World Financial (World Group Securities) agents allegedly put them into inappropriate investments.
In a joint report published in 2004, the SEC and FINRA (formerly National Association of Securities Dealers) said, “High commissions, typically above 5 percent for variable annuities, help drive sales of these products.” According to the most recent survey of state securities enforcement actions by NASAA (the North American Securities Administrators Association), for the period 2005-2006, some 48 percent of all cases of “senior investment exploitation” involved variable or equity-indexed annuities. That represents an increase from 34 percent for the 2004-2005 time period.
If you are planning on getting involved with a multilevel marketing company, maybe you would be better off just buying some Amway products.
