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Life Health > Annuities

Annuity Sales in the Post-Madoff Era

By Maria Wood

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I hate to admit it, but I watch soap operas. Yes, they are silly and improbable but sometimes they can be a window into public perceptions.

Take, for example, a recent storyline on The Young and the Restless. Finally, the audience knows why the town mean girl, Phyllis, is so malicious. What turned her into such an off-the-charts nasty nutcase? Her father, as it turns out, was a financial advisor who swindled old people and threw her out when she turned him in. (You have to suspend disbelief that she would have the wherewithal to do so as a teenager.) Ah, now we know the real villain.

Interesting that the writers thought of that particular profession to convey what a dastardly person her father was. Do financial advisors truly have such a poor, and undeserved, reputation in the public’s eyes?

Recently, LifeHealthPro.com blogger Michael Ham wrote about the case of a California insurance salesman, Glenn Neasham, sentenced to prison for selling an annuity to 83-year-old woman. The woman, according to reports of the trial in the local paper, was diagnosed with dementia several years after she purchased the annuity contract.

According to Ham’s article, the annuity actually made money for the policyholder and relatives of the woman were consulted before the deal was done. Yet the State of California deemed the transaction illegal and charges were brought against the agent.

As you might expect, Ham’s article generated a flurry of comments from readers of LifeHealthPro.com. (Thank you all for your well-considered remarks.) All of the comments sided with the advisor, saying the conviction and punishment were unwarranted.

Richard Duff wrote a lengthy article about the trial for LifeHealthPro.com’s sister publication, ProducersWeb.com.

The case, however, does raise some troubling questions, such as:

  • California recently adopted the NAIC’s model annuity suitability sales model. Did the state and the local prosecutor want to set an example with this case?
  • Was the advisor guilty as charged? By all reports, his record was clean and he followed all protocols. Yet could the agent, as several commentators pointed out, have done more a thorough suitability review in this case?
  • Yes, her investment reportedly made money. But it could have easily lost money as well. Does the fact that the policy bore fruit justify what could have been an unfair selling process?
  • What was the carrier’s role in the sales process?
  • Lastly, was this an example of the Madoff Effect? In other words, after the high-profile case of Ponzi schemer Bernard Madoff, are all financial advisors tainted in the minds of the public? Could that have been the reason jurors convicted the agent in this instance? What can the profession do to combat that perception?

These questions are not meant to cast judgment either way, except to emphasize that this case will have far-reaching and devastating effects not only on the agent and his family, but the professional as a whole.

Perhaps most chilling is the possible consequence this case could have on annuity sales. Will advisors be reluctant to sell annuities to a senior in the future, knowing the same fate could await them as it did with the California agent? Will carriers up their suitability requirements even more? Are more regulations in store for the industry? Will an already more difficult sales process become even more arduous and is that necessarily a bad thing if it weeds out potentially unlawful transactions and protects agents from liability?

Tell us, as agents and advisors, how could this case impact your practice?

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