Here’s our annual list of the top 10 individuals, organizations or regulations (in no particular order) that are hindering — instead of helping — the life insurance, health insurance and retirement planning industries.

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Dave Ramsey

He bills himself as “America’s trusted voice on money.” His website is cluttered with financial self-help products for sale, everything from the “Financial Peace University” for a $109 membership fee to his “Destroy Debt Bundle” for a mere $35.

But what if the millions of people that listen to Ramsey’s frequent radio show and buy his products are getting the wrong advice? And without even knowing it? Many of Dave’s pieces of advice are actually myths, but they’re said often enough and passionately enough that their validity is accepted without knowledge.

For example, Ramsey claims that if you invest his way, you can expect a 12 percent annualized return, yet his math never adds up. He recommends individuals work with an endorsed local provider (ELP) instead of investment advisor.

The difference? ELPs get paid to sell you something, not give you advice. Ramsey believes term life insurance is the only way to go (never perm life) because when term expires, his followers will have no debt, no house payment and hundreds of thousands of dollars in savings. However, as LifeHealthPro.com writer Michael Markey puts it, “the security of death benefit proceeds doesn’t completely or necessarily evaporate with the elimination of debt and/or creation of wealth.”

There’s more. On Ramsey’s website, he writes that he is not a fan of annuities. “One of the main reasons is that annuities have significant expenses that reduce the growth of your investment,” he explains. “Annuities also have surrender changes on early withdrawals that can limit access to your money in the first few years after you buy the annuity.”

However, as most readers of this publication can attest, annuities are not investments, surrender charges on early withdrawals only exist when it’s in excess of the penalty-free withdrawal amount and, of course, all annuities do not have significant expenses.

Sadly, this is only the tip of the bad financial advice iceberg. Go to LifeHealthPro.com/seriouslydave for complete analysis of Ramsey’s misleading efforts.

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Sylvia Mathews Burwell

Burwell is the secretary of the U.S. Department of Health Human Services (HHS).

She’s a rogue because of the sad, sudden end of many of the new, nonprofit, member-owned Consumer Operated and Oriented Plan (CO-OP) carriers.

Burwell took over as HHS secretary in June 2014, as travelers were starting to come down with the Ebola virus infections they would eventually bring to the United States. Burwell is not a doctor or a public health expert, but, still, while she was HHS secretary, the U.S. Centers for Disease Control and Prevention (CDC) and other HHS units took charge of bringing Ebola under control. Her team kept 2015 from being like a nonfiction version of a “Walking Dead” episode.

So, what about Burwell’s relationship to the CO-OP crisis makes her rogue? We think there are three possibilities about why she failed to speak up about the CO-OPs’ problems early in 2015:

1) She had no idea how bad the CO-OPs’ situation was until late in the summer of 2015.

2) She knew the CO-OPs were in trouble early on and worked hard behind the scenes to save them, but she said little or nothing about her concerns in public.

3) She knew the CO-OPs were in trouble early in the year and shrugged.

We know of no evidence for the second possibility — that Burwell worked hard behind the scenes to try to save the CO-OPs.

If the first possibility is true, and Burwell had no idea how poorly the CO-OPs were doing: What good is having a Rhodes Scholar who’s a former OMB director as HHS secretary if she’s not energetic enough to skim through an S&P press release about the CO-OPs’ risk corridors program problems?

So, for us, the most plausible possibility is the third one: that Burwell knew the CO-OPs were in trouble early in the year, and responded by not doing much of anything, either to keep the CO-OPs alive or shut them down in an orderly way.

In some areas of her life, she may be a good guy. In this particular area, we believe that she qualifies as a rogue.

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Kevin Counihan

Kevin Counihan is the director of the Center for Consumer and Information and Insurance Oversight (CCIIO), and also the chief executive officer of HealthCare.gov, the Patient Protection and Affordable Care Act (PPACA) enrollment system for states that let the U.S. Department of Health and Human Services (HHS) handle exchange enrollment. He’s on our list of rogues this year because he tried to get state insurance regulators to believe in the stability of the PPACA risk corridors program at a time when he should have been warning them to watch out.

The risk corridors program is one of the “risk management” programs PPACA drafters created in an effort to keep the health insurance market healthy. The program was supposed to use cash from exchange plan issuers that did well in 2014, 2015 and 2016 to help exchange plan issuers that did poorly during those years.

Regulators at the National Association of Insurance Commissioners raised doubts about the collectability of the risk corridor payments at least as far back as April 2014.

Deep Banerjee and other analysts at Standard & Poor’s Ratings Services estimated back in April 2015, based on a review of insurer financial filings for the first three quarters of 2014, that the risk corridors program might collect only enough cash from exchange plan issuers that did well in 2014 to pay about 10 percent of the amount owed to issuers that did poorly.

But, in a memo to state insurance commissioners on July 21, after CCIIO analysts should have been able to crunch a full year of the same kind of data that the S&P had crunched, Counihan wrote the following: “We anticipate that risk corridors collections will be sufficient to pay for all risk corridors payments…. We believe these payments should be taken into account before decisions are made on final rates.”

Counihan was a vice president at Cigna. He was a senior vice president at Tufts Health Plan. He’s been the president of Choice Administrators, a private exchange administration firm.

He seems to be a smart, wonderful, well-intentioned guy, who has probably done a lot of good, overall, for the U.S. health finance system, but what on earth led him to tell insurance commissioners to have faith in the risk corridors program in July, when big rating agencies were already putting out national press releases highlighting concerns about collectability?

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10 FOMC Doves

We’re listing 10 members of the Federal Open Market Committee (FOMC) as a group rogue, owing to those 10 members’ failure, as of press time, to use whatever influence they have over interest rates to make rates go up.

The FOMC is the part of the Federal Reserve System that decides what the Fed will do about interest rates and the money supply.

The current low rates are terrible for life and health insurers that write products that involve benefits with a long duration, or that protect consumers against events that may occur years, or decades, in the future. Issuers of those products depend on earnings on investments to supplement premium revenue.

State laws, regulations and guidelines sharply limit the kinds of investments life insurers can use to back up their products. They can invest some of their assets in stock, and some in vehicles such as private equity funds, but, mostly, they have to invest in corporate bonds, mortgages, mortgage-backed securities, government bonds and other instruments that rating analysts and insurance regulators view as being highly secure. Even if, when you think hard about it, you realize that some of those investments might not necessarily be much more secure, over the next 25 years, than a timeshare in a dream castle on Mars. (At least you can be sure that you can continue to fantasize about visiting a dream castle on Mars.)

Exactly how much influence the FOMC has over the kinds of long-term rates that insurers care about is complicated and unclear, but at least the FOMC has direct control over the federal funds rate.

By the time you read this, the FOMC might have started nudging that rate a bit higher. Even if that’s the case: What took so long?

The current members of the FOMC are Janet Yellen, the Federal Reserve Board chair, and William Dudley, Lael Brainard, Charles Evans, Stanley Fischer, Jeffrey Lacker, Dennis Lockhart, Jerome Powell, Daniel Tarullo and John Williams.

We designated Yellen as a rogue last year, because of her role in perpetuating insurer-smothering low interest rates. Because she was a rogue last year, we’ll leave her off the list this year. But she knows she should be featured on these pages.

We’re also exempting Lacker, the president of the Federal Reserve Bank of Richmond, who, according to FOMC meeting minutes, pushed for a rate increase in September.

Of course, the FOMC are probably all brilliant, patriotic people who deserve our gratitude for doing their best to keep our monetary system stable, but, still: The interest rates are too damn low.

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Jim Staley

Jim Staley was a prominent man in his community. He was a bible teacher and pastor with Passion for Truth Ministries, out of St. Charles, Missouri, which grew from a basement bible study to a ministry that reached some 2 million people worldwide through weekly live streaming, radio and television broadcasts, social media, the ministry website and other resources.

This seeming do-gooder had a Devil on one shoulder, however. In April of this year he pleaded guilty to four counts of fraud and confessed that he cheated others in an investment scam from which he profited $570,000.

An FBI release outlined the details of the scheme: “James Staley was indicted for his alleged scheme to defraud investors by making false promises of high rates of return and minimal risk. The indictment states that Staley defrauded 11 investors/lenders by causing them to invest over $3.4 million.”

The pastor’s elderly victims, some of whom were living with cognitive disorders, said they trusted Staley because he professed his Christian faith and family values. But in court last spring, they called him “sick, manipulative and deceitful.”

Staley, a married father of six, was sentenced to seven years in federal prison and ordered to pay $3.3 million in restitution to his defrauded investors. He makes this year’s list for giving the industry — and religion while he’s at it — a bad name.

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U.S. Senator Elizabeth Warren

Too scared to run for President, U.S. Senator Elizabeth Warren decided to spend her energy on a witch hunt of the government’s whipping boy du jour — the annuity advisor.

What’s Warren got against annuity advisors? She thinks it’s bad business that annuity advisors get incentives to hit their numbers. (That’s not a typo.) Warren is against people in a sales-oriented profession from earning incentives and perks for the work they do and the deals they close.

A quick perusal of Warren’s resume revealed that she’s never sold insurance or financial products. In fact, unless it was left off of her CV, she’s never sold anything. She’s spent her career pushing to overregulate consumers and the products they buy.

Warren was an early advocate for the creation of the Consumer Financial Protection Bureau (CFPB). The bureau was established by the Dodd–Frank Wall Street Reform and Consumer Protection Act.

According to a report from www.WhiteHouse.gov, President Obama named Warren as Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau to set up the new agency. Liberal groups jumped on the bandwagon to have Warren run the agency, but financial institutions and Republican members of Congress opposed any nomination for fear she’d be an overly zealous regulator.

So now Warren’s turned her attention to annuity advisors.

Earlier this year, Sen. Warren sent letters to 15 of the country’s largest annuity providers because she didn’t like the perks advisors were getting in the form of cruises, international travel, iPads, cash, stock options, even diamond-encrusted ‘NFL Super Bowl Style’ rings. According to Warren, the annuity providers wined and dined advisors to “entice sales of their products.”

In her letter, the Senator wrote, “Annuity agents that are more interested in earning perks than in acting in their clients’ best interest can place Americans’ savings and retirement security at risk.”

While the industry wants what is best for American consumers, when did incentives become a bad thing? This is a capitalistic economy after all. Isn’t it?

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The Robo-advisor

The robots are coming! The robots are coming!

Yes, we’ve all heard the doom and gloom stories of the hated robo-advisor who wants to take the jobs of flesh-and-bone advisors.

These days, the news never seems to stop. In a report released in November, the research firm Cerulli Associates projected a 2,500 percent jump in robo assets by 2020, to $489 billion.

“The compelling value proposition of digital advice providers (or robo-advisors), who offer low-minimum, low-cost portfolios, coupled with consumers’ expanding interest in passive investing will fuel this growth,” said Tom O’Shea, associate director at Cerulli.

And, every insurance advisor’s favorite government agency, the Department of Labor, has an opinion on the metal meddlers as well. At a June 17 congressional hearing, Secretary of Labor Thomas Perez touted the use of robo-advisors as an example of the “good guys.”

Perez likes them because, among other things, they’re all fiduciaries, and, unlike many advisors, they have a legal obligation to put clients’ interests first. 

With so much going for robo-advisors, what could possibly be wrong? Sure, robo-advisors can be programmed to clock in 24-hour work days without breaking a sweat. They can be transparent in their transactions, too. And, they don’t have to worry about commissions, so there’s no worry of them victimizing seniors. All that’s well and good, but…

But (and this is a huge one) they’re not human! Sorry to wave the species card, but no matter how much people rely on technology to get through the day, there comes a time when people want to talk with another person. They want an advisor – a human one – sitting across their coffee table from them actually sipping coffee when they discuss their retirement, their estate or the death of a spouse. If a person wants to talk to a machine, they can yell at their toaster to hurry up and toast some bread.

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Ken Fisher

Founder of Fisher Investments, a wealth management firm based in Camas, Wash., Ken Fisher wears many hats. He is the father of the price-to-sales ratio, the manager of $68 billion in assets, the author of the third longest-running column in Forbes history  — and a particularly outspoken advocate against annuities and those who sell them. His bold online and print ads shout, “I hate annuities … and so should you.”

In addition to his Forbes column, Fisher is the author of 11 financial books, four of which are New York Times bestsellers. His voice has the power to tarnish an industry that is already challenged by a lack of consumer trust.

Why is Fisher anti-annuity? He finds the guarantees untenable, the return on investment minimal (more like “return of capital,” he claims), the fees high and the contracts impossible for clients to understand. In short — and Fisher is not afraid to cut straight to the point — the promises annuity salespeople make are lies, he says.

This is painting with damagingly broad brushstrokes, of course. Fisher is choosing to focus on only a small portion of the industry, and he’s making quite a lot of money doing so. Every industry has bad actors, the financial services industry perhaps more than most.

But these bad actors should not be elevated to become the face of an industry. That way of thinking is simplistic at best; more accurately, it is both sensationalist and deeply misleading. Ken Fisher is calling his own strong opinion truth, and pushing it on millions of consumers.

But don’t just take our word for it. Fisher’s opponents include industry thought leaders like Moshe Milevsky, Wade Pfau and Scott Stolz, all of whom advocate that annuities play a valuable role in a well-balanced portfolio. They have a few choice words of their own to describe our rogue: Ken Fisher is “disingenuous,” “drastic” and “blatantly wrong.”

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Captive Reinsurers

If the worst fears of critics who examine data on the industry’s capital reserves are realized, the U.S. could be facing another financial crisis. But this time, the cause won’t be banks, but rather institutions traditionally associated with rock-solid balance sheets: life insurers.

Since the early 2000s, some 70 product manufacturers have shifted an estimated $440 billion in liabilities — blocks of in-force life insurance policies — to special purpose vehicles, also known as captive reinsurance companies. Wholly owned subsidiaries of the carriers, the captives ostensibly exist to indemnify their parent companies (a.k.a., the “ceding” insurers) against loss in the event that policy claims exceed mortality experience.

The problem: The ceded liabilities are often not matched by collateral assets sufficient to guard against default. As a result, insurers that established the captives are at risk of financial insolvency — a risk that could become reality if the companies were forced to unwind their transactions.

To be sure, no one knows for certain how serious the issue is. And that’s because the captives — not far-flung offshore entities but domestic companies — enjoy, in many cases, protection from public scrutiny of their financial statements. Incredibly, financial data is also often shielded from the prying eyes of state insurance commissioners in cases where laws (i.e., those permitting the captives’ financial statements to remain secret) governing captives in the ceding insurer’s state don’t match those of the state where the captive is domiciled.

This shielding runs counter to the National Association of Insurance Commissioners’ (NAIC’s) Model Holding Act. Adopted in all 50 states, the act requires that material transactions between an insurer and affiliated company (i.e., the captive) be done on “fair and reasonable” terms and be “so maintained as to clearly and accurately disclose the nature and details of the transactions.”

Translation: An auditor of financial records needs to be able to see both ends of a transaction. If an insurer says it’s transitioning $500 million in policy liabilities and matching assets to a captive, the auditor needs to be able to verify the transaction by viewing the captive’s own financial statements.

Too often, however, that’s not happening. What is taking place is window-dressing: the moving of enormous sums of real liabilities; and the insertion of “contingent assets” — variously labeled “letter of credit facility,” “contingent credit-linked note” or “parental guarantee” — that don’t qualify as true assets because the captive hasn’t taken control of them. Result: The ceding insurer can lay claim to a surplus of capital reserves where none before existed.

Industry-watchers are raising alarm bells about these sham accounting schemes. Among the finger-pointers: The New York State Department of Financial Services, Moody’s Investor Service and the International Monetary Fund, which in a recent report bemoaned “weaknesses in regulation [of the captives] with sector or system-wide implications.”

Read: financial insolvency, potentially on a huge scale.

Says Tom Gober, a fraud investigator at Thomas Gober Forensic Accounting Services: “The NAIC Model Holding Company Act is crystal clear. Shoving liabilities into the insurer’s ‘captive’ does nothing. Nor can a non-asset held by the captive magically become an admitted asset of the insurer.

“The captive industry is growing geometrically,” he adds. “And so is the problem the captives’ parent companies have created.”

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The U.S. Department of Labor

Here’s what you can expect if the Department of Labor’s fiduciary rule proposal goes into effect:

• Fewer advisors serving the middle market for retirement advice;

• Increased costs for those brokers remaining in the market;

• Reduced choice and less affordable access to retirement advice for consumers; and

• An expansion of procedures and paperwork that do more to undermine the advisor-client relationship than to advance the draft proposal’s ostensible goal of protecting consumers.

The outcomes are uniformly bad. And it’s because of the DOL’s wrong-headed insistence on moving ahead with the proposal — despite fierce opposition from industry stakeholders — that we have awarded the department a prominent spot in this year’s gallery.

The DOL should have seen this coming. Now in fifth year, NU’s Rogue’s Gallery encompasses a growing list of players — from fraudsters to political pundits — that have exercised a damaging influence on the industry. The DOL, in our view, deserves a full page to itself because its signature proposal is so-far reaching — and so terribly harmful.

Not to mention “ugly,” as a member of the legislative team of the National Association of Insurance and Financial Advisors (NAIFA) labeled the draft at its annual meeting in New Orleans last September. Apart from the aforementioned negatives, why are agents and advisors, carriers and wholesales so riled up about the DOL’s handiwork?

As many industry watchers argue — and we strongly agree — the proposal adds a needless layer of regulatory and compliance requirements. The existing product suitability standard governing brokers in the retirement space has more than made good on an overriding public policy goal: protecting consumers against bad investment advice.

Claims by backers of the fiduciary standard that consumers are being ill-served under the existing rules — that they’re paying too much in commissions or fees or buying products that don’t best match their financial needs —don’t hold up on close scrutiny.

But the DOL isn’t listening. And so, absent last-minute changes to the draft regulations, the DOL is moving ahead with a proposal that will force on advisors a “best interest contract (BIC) exemption:” a pre-advice, pre-point-of-sale contract with a potential investor mandating (among other things) that advisors act in the client’s best interest; and which warrant that they have policies and procedures to mitigate and disclose conflicts if they offer proprietary or a limited set of products.

Absent this contract, commissions will be forbidden — and a commission-only producer will have to work for free.

Clearly, the DOL proposal is unworkable. One can only hope that bi-partisan principles unveiled by members of the House —Peter Roskam (R-IL), Richard Neal (D-MA), Phil Roe (R-TN) and Michelle Lujan Grisham (D-NM) — will produce legislation that: (1) offers a common-sense solution to fix the DOL’s proposal; and that (2) relegates the current draft proposal to where it belongs: the dustbin.

 

See also:

Hall of fails: National Underwriter’s 2014 Rogue’s Gallery

The Bad Bunch: National Underwriter’s 2013 Rogue’s Gallery

Rogue’s Gallery 2012