No RAAs for You, Comrade

I might as well admit to you that I did not see the California ban on retained asset accounts coming. I mean, ever since this story first broke (much to Prudential’s dismay) more than a year ago, our continuing coverage of the RAA issue has pointed to a slow and inexorable movement toward some kind of regulation on the issue. In my heart, however, I never really thought it would come to pass. Surely, if an outright ban on retained asset accounts were to happen anywhere in the United States, it would be in the People’s Republic of California (as a few of my more conservative friends like to refer to the Golden State).

Part of me has always bristled at the way this issue first came to light, through what I felt (and continue to feel) was an unfair story published by Bloomberg that described retained asset accounts as little more than a form of financial trickery aimed at fleecing the beneficiaries of slain military service members. Sure, it made for great copy, and it created a brief media firestorm, but as I later learned, the companies named in that story, especially Prudential, never really suffered and lasting damage from it. Once folks got to understand exactly what RAAs are meant to do, the furor seemed to die down.

After all, RAAs do serve a useful purpose; they allow for beneficiary money to gain interest while the beneficiaries themselves figure out what needs to be done with it. This, on its own, is a good idea. Perhaps where insurers took a wrong turn was when they too gained interested off of this money, which to a cynical eye looks like nothing else other than trying to profit from the dead. And likewise, the industry could have been much more transparent about the practice, but to be fair, this practice had been widespread across the industry for many years. After a while, certain operations simply become “the way we have always done things,” and it begins to never even enter people’s minds that what has become everyday practice might be considered outrageous to others.

That is certainly what happened here. Now, there have been supplementary studies into the practice of RAAs that show how the practice really was being used more for the industry’s benefit than for that of any beneficiaries. A study by the State of Texas that was published back in March comes to mind. In a survey of some 140 insurance companies in the Lone Star State, some 41% of them used RAAs. But where it gets unflattering is when Texas revealed that almost all RAAs in the state offered interest of less than 2.0%, almost all companies offering RAAs had no fixed duration on the accounts. Over 20,000 RAAs in the state had no withdrawal activity for more than three years (in 8,646 cases, more than four years), and the total amount held was more than $329 million. Some37% of companies offering RAAs did not report unclaimed accounts to as unclaimed property (not good).