California Agency Raids VA Broker-Dealer Offices

California securities regulators have started an “extremely rare sweep” of the 3,409 broker-dealer offices overseen by the state in an effort to determine if variable annuities are being sold inappropriately to elderly and unsophisticated investors.

The raid was prompted by an investigation and subsequent legal action against a Texas insurance company and a California broker that the state securities regulators allege operated a so-called “living trust mill.” The brokers who operate the mills invite seniors to hear free advice about living trusts “when in fact they push seniors to unknowingly purchase annuities, many of which are unsuitable,” regulators say.

Officials at the California Department of Corporations, the agency conducting the sweep, say the raid was conducted against the background of the recent crackdown by the U.S. Securities and Exchange Commission and NASD on unsuitable sales of variable annuities.

An agency official says it will take about 3 weeks to scrutinize the records of the broker-dealers it oversees throughout the state. “Results of the sweep and any subsequent actions may be released after a review of the findings by the department,” says California Corporations Commissioner William Wood.

The probe of records will focus on the suitability of VA sales to particular investors, appropriate disclosure of the risks to the investors and any conflicts of interest involved in the sales, according to a department staff official.


Reproduced from National Underwriter Edition, July 29, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.