Investment Fraud Lawyer Blog

Sales pitches often misrepresent and fail to disclose important facts about equity-indexed annuities, according to Mel Lindauer in his August 13, 2010 Forbes article, “The Truth About Equity-Indexed Annuities.”

Despite claims that they are simple, equity-indexed annuities are so complex that most people who sell them have an insufficient understanding of how they operate, according to the article.

Continue reading "Forbes Magazine Warns Investors about Equity-Indexed Annuities" »

It is no surprise that retirees are often the targets of investment scams. But it is a surprise that the scammers are often empathy-challenged senior citizens themselves, and that is surprising. Attorneys and advocates for the elderly are reporting an increase in the number of elder scams perpetrated people their age, according to an article in Bloomberg BusinessWeek, “Senior Swindlers: A Sucker Retires Every Minute.”

Continue reading "Senior Citizens are Increasingly Targeted by Swindlers Who are Often Senior Citizens" »

In the current interest rate environment, investments traditionally viewed as “conservative” such as money-market accounts or certificates of deposit are yielding investors almost nothing. As such, many retirees or “conservative” investors are in a bind and looking at alternatives to provide them with a yield that gives them sufficient annual income.

One of the alternatives being touted is an “immediate annuity.” An immediate annuity is an annuity that is purchased with a single premium and that begins income payments immediately or very soon after purchase. Unlike buying a bond, which can be sold at anytime or rolled into another bond when it matures, an annuity locks an investor into an interest rate forever. Investors are essentially making a bet on how long they will live. For investors who live into their 80s or longer, these investments could have an attractive payoff. However, for those who do not survive that long, immediate annuities become a poor investment.

Continue reading "A Primer on Immediate Annuities" »

Public school teachers have filed a class action lawsuit against The Variable Annuity Life Insurance Co., known as VALIC, according to a recent article in InvestmentNews by Darla Mercado. The teachers are suing on behalf of all individuals who bought a VALIC deferred annuity after Jan. 1, 1974, in order to fund a qualified retirement plan.

Continue reading "Teachers Sue to Recover Variable Annuity Losses" »

Financial advisors’ unenthusiastic reception of recently-offered lower-cost variable annuities confirms what most observers took for granted – that variable annuity sales are driven primarily by commissions. See “Slimmer variable annuities attract thin following,” InvestmentNews, Jan. 10, 2010, by Darla Mercado.

Continue reading "Why Do They Sell Variable Annuities? - It's the Commissions Silly" »

A four-year class action lawsuit brought on behalf of hundreds of thousands of American consumers against insurance giant Allianz Life Insurance Company of North America has come to a confusing and contradictory end, reported the Minnesota StarTribune in its October 14, 2009 article entitled, “A split decision in Allianz Life annuity lawsuit.” Or has it?

A Minnesota jury found earlier this week, on Monday, October 12th, that Allianz Life Insurance Company used a misrepresentation or deceptive practice in the course of selling its two-tiered annuities by falsely promising in its pre-sale marketing materials that consumers would receive a 10% “upfront” bonus when they purchased those annuities. In reality, the class action complaint alleged, the bonus was not “upfront” and was not available to policyholders for 15 years, if ever.

Continue reading "Jury Finds That Allianz Life Insurance Company Used Misrepresentation Or Deceptive Practice In Selling Its Two-Tiered Annuities" »

Last year, the Securities and Exchange Commission issued a rule that brought Equity Index Annuities within its regulatory jurisdiction and provided greater investor protection. Previously, those insurance products were not considered to be securities subject to SEC regulation. The SEC rule was challenged in court by a group of insurance companies. A federal court of appeals ruled that the SEC does have the authority to regulate Equity Index Annuities, but it ordered the SEC to reconsider the rule’s effect on the economy, reported Sara Hansard in her July 26 article in InvestmentNews entitled “SEC’s EIA rule may resurface.” While it is not under a deadline to do so, some observers expect that the SEC will complete is assessment and reissue the rule pretty quickly, rather than asking the court of appeals to reconsider its ruling.

Continue reading "Insurance Companies Try to Thwart SEC Oversight of Equity Indexed Annuities" »

Investors who purchased variable rate annuities with guaranteed minimum returns may be surprised to learn that the guarantee is not necessarily guaranteed. Under some contracts, it is possible for the insurer who wrote the annuity to cancel the guarantee or significantly reduce its payout.

Continue reading "Variable Rate Annuities with Guarantees? - Check the Fine Print" »

With the decline in the major stock market indexes, many life insurance agents are now urging their customers to buy Equity Indexed Universal Life Policies, or EIUL's. These policies have a life insurance component that pays a benefit when you die plus an investment component which usually earns a portion of the gains of a particular index or, if the index declines, a minimal guaranteed return of approximately two percent.

Continue reading "Equity Indexed Universal Life - Typically a Bad Idea" »

On May 13, 2009, the U.S. Securities and Exchange Commission (“SEC”) approved a rule change that requires brokers to disclose alleged sales practice violations made by a customer against a securities broker in the body of a civil lawsuit or arbitration claim, even if that broker is not named as a defendant or respondent. The SEC received a total of 1,654 comment letters on the proposed rule change. Approximately 1,451 of the letters were “form letters” from financial advisors and insurance agents (who sell insurance products such as variable annuities) opposing the change.

Continue reading "Regulators Require Financial Firms to Provide More Public Disclosure Regarding Customer Complaints" »

Fidelity Brokerage Services LLC has had trouble retaining some of the most successful brokers in its Private Client Group as a result of questionable sales practices. According to an article in Investment News, dozens of brokers serving Fidelity’s most affluent clients recently left the firm because, even though they were required to obtain certified financial planner certifications (CFP), they were prohibited from disclosing details of their bonus compensation, thereby violating the certification they were required to obtain. In addition, some former brokers claim that Fidelity required them to push proprietary products that were unsuitable for some of their clients.

Continue reading "Questionable Sales Practices Haunt Fidelity" »

Investors owning variable annuities should carefully review their investments from several perspectives. Investors should evaluate the risks that they have been exposed to in the past and consider whether they wish to continue being exposed to such risks in the future. This is particularly important for variable annuity investors, many of whom sought a relatively safe haven from market volatility.

Continue reading "Variable Annuities Warrant Close Scrutiny" »

Following a year in which stocks have dropped by more than 40%, brokers and insurance salesman are aggressively pushing the Equity Indexed Annuity (EIA) as an investment by which an investor can participate in the upside of the stock market without any exposure to the downside. As a smart investor, you shouldn't fall for this sales pitch because it is not true.

The Securities and Exchange Commission has recognized the abusive sales practices and confusing nature of these products. It recently passed a rule requiring strict regulation of EIAs.

Continue reading "Don't Fall into the Equity Indexed Annuity Trap" »

Recently many investors in variable annuities have experienced unanticipated losses. Since some people purchase variable annuities based on the assumption that they are immune to market fluctuations, many have learned the hard way that, like mutual funds, variable annuities invested in equity "sub-accounts" can lose significant value. However, if a variable annuity is sold to a customer with a promise of safety or without adequate disclosure of risk, the customer may have valid legal claims for fraud or misrepresentation.

Continue reading "Is Your Variable Annuity Safe ?" »

401(k) Plans – the primary retirement savings vehicles for most Americans – have lost more than $500 billion over the past 12 months as a result of the market crisis, as reported by Eleanor Laise of the Wall Street Journal on October 11, 2008 in an article entitled “Statement Shock Hits 401(k)s.” The average 401(k) balance had dropped roughly 18% to 23% as of October 30, 2008, depending on the participant’s age and tenure with the plan, according to another Journal article by Ms. Laise entitled “Financial Crisis Highlights Shortcomings of 401(k) Plans” published on November 3, 2008. There are $4.5 trillion in defined contribution plans, including $3 trillion in 401(k) plans. The situation is especially dire for workers who recently retired or are on the brink of retirement.

Employees who have lost money and were unsuitably invested should understand that they may have legal remedies. In a recent landmark decision, the United States Supreme Court held that 401(k) plan participants can now bring claims against their employers and other plan fiduciaries. Employers and other retirement plan fiduciaries may be liable for any unsuitable investment recommendations or choices offered to plan participants who have suffered losses. A 401(k) plan participant who has suffered a loss can and should have his or her account evaluated at no charge by counsel experienced in such matters.

Continue reading "Employees May Have Legal Claims For Sharp Declines In 401(k) Accounts" »

Variable annuities have long been known to be poor products for almost all investors. Insurance companies, however, made tremendous profits in selling them and paid high commission to brokers. Now, in the wake of massive stock market declines,
variable annuities are starting to drag down the profits at such insurers.

According to a recent article by Lavonne Kuykendall in The Wall Street Journal, the damage is coming as insurers are also taking losses on the massive investment portfolios that back their insurance policies. Losses have come from holdings in the financial sector, from falling values in mortgage-backed securities, and unrealized losses in investment grade corporate bonds.

Since stock markets have fallen, insurers face reduced fee revenue as their annuity assets under management shrink. For accounting reasons, they also face charges against earnings related to the cost of acquiring the business.

Continue reading "Variable Annuities: Usually Bad For Investors, Now Bad For Insurers As Well" »

Where is the end to the Fed’s willingness to bailout faltering businesses by nationalizing them and subjecting taxpayers to extensive risk? Unfortunately, in the current economic environment, there are countless major companies across the American economy whose business plans are faltering. Among those in serious trouble, are most of the airline companies, most of the automobile makers, countless financial institutions, many major retailers, and numerous others. It would be practically impossible and, indeed, foolhardy for the Fed to try to bailout all businesses that are suffering from current economic conditions. Unfortunately, the Fed has gone down a road that may lead to dire consequences in the future.

Continue reading "Fed Bailouts - Where Do They End?" »

Late on Tuesday the Fed seized control of American International Group (“AIG”) to prevent a bankruptcy filing by the nation’s biggest insurer. Apparently, the Fed concluded that AIG was “too big to fail” and that its bankruptcy would have had potentially catastrophic impact on the world’s financial systems. In a prepared statement, the Fed said, “A disorderly failure of AIG could add to already significant levels of financial market fragility.”

Continue reading "The Fed Bails Out AIG" »

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.

Continue reading "Have Things Changed At World Financial Group?" »

Not surprisingly, some financial advisers are more inclined to exploit a client’s fear during a bear market than during a bull market. In periods of turmoil, such advisors encourage so called “safety net” investment vehicles.

The term “safety net” is used to describe an investment that promises the upside of a market with little or no risk. In some cases, guarantees such as a minimum income or principal protection are offered. Sometimes a bonus of at least 7% of the account value is also promised when an agreement is signed.

When an advisor pitches a safety net investment, it usually involves an insurance product, e.g. equity indexed annuity or variable annuity with living benefit guarantees. The downside of safety net investments is that while agent commissions are high, returns are low - averaging about 2% to 3% annually. Also, a surrender charge or exit fee of 6% is incurred if money is withdrawn within the first six to eight years. Finally, in many cases, the promised bonus is illusory.

Continue reading "Investors: Beware the "Safety Net" Trap Associated with Equity Indexed Annuities and Variable Annuities" »