Four years ago, Glenn Neasham met with Fran Schuber and her long-time companion to close the sale of a fixed indexed annuity that would assure the 83-year-old senior of a guaranteed income for the remainder of her retirement years. Except for Schuber’s designation of the annuity’s contingent beneficiary, Neasham viewed the transaction as straightforward—one of many the veteran life insurance agent had carried out of a popular product since it became widely available the same year.
The sale turned out to be anything but routine. Neasham, 52, now stands guilty of felony theft under California’s financial elder abuse statute. The crime: selling an annuity to a woman suffering from dementia. Stripped of his insurance license and dependent on financial assistance from family members, the once-successful producer now is free on bail pending the appeal of an October 21 sentence that had called for him to serve 300 days in prison, which was later reduced to only 90 days.
The life insurance community, like Neasham, awaits the case’s outcome with trepidation. If the conviction is upheld, sources tell National Underwriter, it could require producers to show greater due diligence in annuity sales. When judging product suitability, not only will agents have to evaluate prospects’ financial situation but also, observers fear, their competency to proceed with the sale. And many producers may be averse to so delicate an undertaking.
“There may be no way, other than by the agent asking the question, as to whether the annuity applicant is suffering from some form of cognitive impairment,” says Mike Rosaasen, vice president of Centennial, Colo.-based Triumph Marketing, the field marketing organization that serviced Neasham’s sales of Allianz and other carrier products. “They may not want to do this extra fact-finding. Agents are already facing enough obstacles that hinder sales.”
The Start of a Nightmare Neasham’s current difficulties are the result of a four-year train of events dating to 2008. In January of that year, Louis Jochim, a long-time client, contacted Neasham to arrange for the purchase of an Allianz Life MasterDex 10 fixed indexed annuity to Jochim’s companion of many years, Fran Schuber.
Himself the owner of an Allianz Life fixed indexed annuity, Jochim saw it as ideal for Schuber. The product provides downside protection against market slides, and like other fixed indexed annuities, it captures a portion of market gains through a passive investment strategy that increases the annuity’s value in tandem with positive changes in one of several recognized market indexes.
Factoring in also the annuity’s tax-deferred growth and its track-record—since 1994, Neasham says, the MasterDex 10 has enjoyed an average 8% rate of return in equity options and between 3% and 3.5% annual interest on its fixed account—Schuber stood to earn more on her retirement nest egg than she was then generating on the paltry interest paid on the $239,000 she had invested in a bank CD.
The product, says Neasham, offered other advantages that fit Schuber’s financial situation. Among them: a 10% bonus paid on premiums added during the first five years of the contract; a guaranteed monthly income paid for 10 years or longer after the initial 5-year deferral/surrender charge period; free withdrawals of up to 10% annually of the annuity’s account value (accelerated distributions in the event the policyholder enters a nursing home, as transpired with Schuber); plus flexible income options, including traditional annuity payments or lifetime income withdrawals. “If there were a better product on the market, I would have sold it to her,” says Neasham. “The MasterDex 10 was a very safe solution, underwritten by a financially strong company—Allianz Life, the 3rd biggest money manager and the 15th biggest corporation in the world.”
The sale clinched in February of ‘08, Neasham invested all ($175,000) but $100,000 of Schuber’s retirement savings in the annuity. And per Schuber’s request, he designated Jochim as the product beneficiary in the event of her death.
Neasham voiced concern, however, about Schuber’s stated preference for the contingent beneficiary: Betty Koenig, Jochim’s daughter, rather than Schuber’s son Ted, from whom she had been estranged for many years.
This issue—not the product’s suitability or Schuber’s competence to agree to the transaction—was the sole complication that Neasham thought might invite scrutiny from Allianz or the State of California Insurance Dept. And so, Neasham says, he had Schuber sign a “CYA” letter confirming her choice of beneficiary. The letter also states that she purchased the annuity of her “own free will,” in part to secure the product’s tax-favored treatment.
Neasham adds that, the day after the sale, he invited the son to a client appreciation dinner that Schuber was scheduled to attend. But the son declined; thus was lost an opportunity to patch up relations with his mother and get himself named as the annuity’s contingent beneficiary.
“During a follow-up phone conversation on February 6th, two days after the sale, Ted said he was concerned about his mom’s overall health, but at no time did he mention that she had dementia or Alzheimer’s Disease,” says Neasham. “If he had done so, I would immediately have stopped the transaction from going through.
“The policy wasn’t even issued yet and [Schuber] had a 30-day free-look period,” he adds. “If I had had any inkling of a mental health issue, I would immediately have called Allianz and asked them and my FMO [Triumph Marketing] what to do in this situation. I would also have contacted the client and asked further questions about her mental health.”
The first sign of trouble arose even before the ink on the annuity contract was dry. When Jochim accompanied Schuber to her bank on February 4 to withdraw the $175,000, he called Neasham to say the bank was “giving them problems in reference to moving the money.”
The reason: Jochim’s purported “influence” over Schuber who—the prosecutor later argued at Neasham’s trial—was confused about the reason for the withdrawal. (The bank rep who handled the request, Neasham insists, mentioned nothing about Schuber’s comportment at the time.)
Neasham’s intervention helped to facilitate the withdrawal, but the legitimacy of the transaction was again thrown into doubt when the bank alerted the California Dept. of Insurance to the withdrawal. In December, DOI Investigator Kristian Schriber began questioning the parties to the sale. For Neasham, the CYA letter he had drafted for his protection had become a bone of contention; Schriber contended, despite Neasham’s protestations to the contrary, that he had Schuber sign the February letter because he “knew something was wrong” with her. Something was indeed wrong by this point, as Neasham understood only too clearly. The DOI was an investigating a sale that, if shown to be unsuitable and in contravention of California law, could lead to a suspension or revocation of his life insurance license. And, if the violation were brought to criminal court and judged a felony, he could also be hit with jail time.
Schuber’s mental health, an issue that had not arisen in discussions with Schuber and Jochim leading up to the February sale, was now front-and-center. Neasham says he asked Jochim after learning of the DOI investigation in December if Schuber had ever been diagnosed with Alzheimer’s disease or other form of dementia.
Jochim said ‘no’. He repeated the denial three days after Neasham’s arrest in December 17, 2010. Neasham adds that Jochim’s 2008 and 2010 statements dovetailed with the personal observations of Penny Patrick in September 2009, then a part-time assistant of Neasham who accompanied him that year at Schuber’s annual client review.
“Penny, who is now a medical assistant, has worked with many people who have dementia and she noticed nothing wrong with Fran during our September 2009 meeting,” says Neasham. “I haven’t seen Fran since, other than the two times at the court house during my trial. She is remarkably different today than in 2008 and 2009.”
Jochim agrees, adding that Schuber was only diagnosed with Alzheimer’s Disease in August of 2011. It is true that Schuber exhibited dementia-like symptoms as early as 2003. But, Jochim and Neasham insist, her condition was only definitively identified long after the sale. And, in any case, Neasham says, he did not know about Schuber’s medical history.
The jury at Neasham’s trial evidently decided otherwise, which judged him guilty on October 21 of one of the charges the Lake County District Attorney’s office filed against him in December of 2010: theft from an elder, a felony. He was acquitted of two other special allegations, one of which stipulates that the theft exceeded $100,000.
Deciphering the Jury’s Logic The reasoning by which the 12-person panel arrived at this verdict remains a mystery, and not only for Neasham. Others interviewed by National Underwriter for this article—two long-time clients of Neasham who were due to testify at trial, a senior executive at Neasham’s field marketing organization, Jochim and, significantly, one of the jurors on the panel—questioned the jury’s ruling on the facts of the case.
Topping the list: the conviction of theft against a senior. As sources repeatedly pointed out, Schuber’s initial investment grew—to the tune of $42,000 over the three years and seven months that she held the annuity.
The gains reinforced Schuber’s expressed sentiment about the product at the time of sale and during the subsequent months. As Jochim points out, she was “very happy that she made money.”