October 16, 2009

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

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.

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July 29, 2009

Insurance Companies Try to Thwart SEC Oversight of Equity Indexed 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.

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June 1, 2009

Variable Rate Annuities with Guarantees? - Check the Fine Print

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.

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May 29, 2009

Equity Indexed Universal Life - Typically a Bad Idea

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.

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May 18, 2009

Regulators Require Financial Firms to Provide More Public Disclosure Regarding Customer Complaints

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.

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April 28, 2009

Questionable Sales Practices Haunt Fidelity

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.

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January 15, 2009

Variable Annuities Warrant Close Scrutiny

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.

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January 7, 2009

Don't Fall into the Equity Indexed Annuity Trap

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.

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November 24, 2008

Is Your Variable Annuity Safe ?

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.

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November 6, 2008

Employees May Have Legal Claims For Sharp Declines In 401(k) Accounts

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.

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October 15, 2008

Variable Annuities: Usually Bad For Investors, Now Bad For Insurers As Well

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.

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September 18, 2008

Fed Bailouts - Where Do They End?

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.

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September 17, 2008

The Fed Bails Out AIG

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.”

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June 9, 2008

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.

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March 25, 2008

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

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.

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February 18, 2008

Allianz Agrees To $10.1 Million Settlement With California Insurance Regulator But Still Faces Class Action Claims

Andrew Frye of Bloomberg.com has reported that the North American subsidiary of Allianz, Europe’s largest insurer, has agreed to a settlement with California’s insurance regulator under which it will pay $10.1 million and change its annuities sales practices. California alleged that Allianz misled investors and pushed unsuitable products onto thousands of elderly persons. In a statement, Commissioner Steve Poizner noted, ``The fact that Allianz used deceptive practices and high-pressure sales tactics to lure and cajole seniors into buying unsuitable products is appalling.''

Page Perry has reviewed the California settlement document. In sum, the settlement requires Allianz to (1) pay a $3,000,000 monetary penalty, (2) pay $300,000 in attorneys fees, (3) make a $3,750,000 contribution over five years to the Life and Annuity Consumer Protection Fund special account within the California Insurance Fund, (4) make a $3,000,000 "High Impact" investment in the California Organized Investment Network, (5) establish annuity suitability systems, standards and procedures, and (6) conduct a claims review process for current or former owners of certain annuities. The claims review process will give policyholders (regardless of age) the opportunity to request rescission of their policies or receive "other specified restitution" from Allianz.

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February 15, 2008

American Equity And Minnesota AG Settle Annuity Lawsuit

On February 7, 2008, the American Equity Investment Life Holding Company reached a settlement of a lawsuit over variable annuities with the Minnesota Attorney General. Hennepin County District Court Judge Kevin S. Burke approved the settlement that resolved all the issues raised in the lawsuit.

The settlement’s two primary components are (i) a defined suitability process for Minnesota consumers and (ii) a claims process for the past sales of certain variable annuity products where the senior consumers were either misinformed or received an unsuitable product.

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February 13, 2008

Four Investment Options To Avoid

In its February 2008 issue, Smart Money magazine noted that, while the options for investing beyond mutual funds may be more attractive than in the past, there are still choices that most investors should avoid. Four such products are:

1. Variable Annuities (VAs)

Brokers and insurance companies tout the tax advantages of VAs, which grow tax free like IRAs. But distributions from VAs are taxed at ordinary income rates – roughly double the capital gains taxes that would be owed if the assets were held in a taxable account. Once you add in payments for the underlying investments and insurance protection fees, a VA could cost an investor five times as much as an investment held in a taxable account. Put $20,000 in a low-cost annuity for 20 years, for example, and you could still have earned $15,000 less than if you had made the same investment in a taxable account.

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February 12, 2008

Complex Annuity Products Make Retirement Investing Difficult

According to an article in Business Week in the Fall of 2007, equity-indexed annuities – which lets the investors share in the stock market gains with a minimal risk of loss – are getting the worst press and the most regulatory scrutiny of any financial product pitched to individual investors. Most of the regulatory scrutiny focuses not on the investment itself but on the hardball sales pitches that fail adequately to explain the fee structure, especially the early withdrawal penalties.

In 2007, attorneys general in two states filed suits against equity-indexed annuities insurers for inappropriate sales tactics. Likewise, a federal judge in Minnesota certified a class action against the largest purveyor of such annuities, Allianz Life Insurance Company of North America, for faulty disclosures. (Page Perry is serving as one of the colead counsel for the plaintiffs in that class action).

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November 6, 2007

Annuity Product Marketers Sidestep No-Call Lists

On October 26, 2007, the Wall Street Journal reported that insurance product marketers are tricking seniors into waiving their rights under the national Do Not Call List.  The Do Not Call law allows companies to call people on the list if they have agreed in writing to receive calls.  Because of this loophole in the law, companies that generate insurance product sales leads have mushroomed.  

It works like this.  Postcards offering information on subjects of interest to seniors are mass mailed by marketing companies to generate sales leads.  These “lead cards” are often imprinted with American flags, have a Washington, D.C. return address, and appear to have been sent by the government or AARP.  The cards often have warnings such as “changes in your Medicare benefits,” or “new legislation passed by Congress that will affect you and your heirs,” or an “AARP study found that probate taxes are hurting seniors.  They offer purportedly helpful information to those who send back the card with their contact information.  The cards do not mention that they were actually sent by a marketing company or that the recipient’s name and contact information will be sold and turned over to insurance salespeople.

Insurance salespeople use the information to sell variable annuities with high surrender charges and lengthy pay-out deferrals, and living trusts that provide no benefit to those who return the card.  They typically present themselves with trumped-up credentials such as “Senior Estate Advisor,” and employ high-pressure and misleading sales practices.  The Wall Street Journal article related a number of specific cases involving elderly people who were persuaded to invest most or all of their nest egg in complicated variable annuities that effectively locked up most of their money for years by imposing substantial charges on withdrawals. The victims were led to believe that they could withdraw their money at any time. The sales commission on such products is typically 9.5%, according to the article.

Such improper sales practices have prompted some state attorneys general to take legal actions against several of these lead generators, charging them with falsely suggesting endorsements by the government or AARP.  Regulators in as many as 20 states have opened fraud investigations.  AARP sued ChoicePoint, Inc., an Alpharetta, Georgia-based seller of personal data, and obtained a court order prohibiting Choicepoint from referring to AARP on its lead cards and from using a Washington, D.C. return address unless it had an office there, according to the article.  AARP has filed similar lawsuits against other marketing companies.

If you believe that you may have been a victim of such a scam, or were sold a variable annuity or other investment that is unsuitable for you, Page Perry, LLC may be able to help.  Our firm will review your situation and advise you on how best to proceed at no charge.  Page Perry, LLC is a nine lawyer Atlanta-based law firm with over 125 years collective experience representing investors in securities related litigation and arbitration.  Page Perry attorneys have successfully handled variable annuity and variable life insurance cases for over 20 years.  The firm is currently involved in a number of variable product cases.