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Regulation and Compliance > State Regulation

Jefferson National to Pay $150K Penalty Over Annuity Sales

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What You Need to Know

  • California Insurance Commissioner Ricardo Lara levied the penalty.
  • Life insurer also to repay $14,000 to senior client.
  • Jefferson National created an annuity sales process that lacked consumer safeguards, the insurance commissioner said.

California Insurance Commissioner Ricardo Lara has levied a $150,000 penalty against Jefferson National Life Insurance Company for creating an annuity sales process that lacked consumer safeguards. Lara also ordered the life insurer to repay $14,000 to an 86-year-old consumer who purchased an annuity she didn’t understand.

Nationwide acquired Jefferson National in 2017.

According to the settlement agreement with the California Department of Insurance, the department was notified in 2018 of the sale of two Jefferson National variable annuities worth roughly $690,000 to an 86-year-old consumer in San Francisco.

The transactions were the result of a relationship the consumer formed with a bank-based financial advisor in 2008, according to another California department document.

The advisor left to start her own wealth management firm, and the consumer agreed to pay the advisor a fee equal to 1% of assets under management for advisory services. The consumer paid for part of the cost of the new annuities involved in the California department case with cash from older annuities issued by Genworth Life and AXA Equitable.

“The consumer, who acted on her investment adviser’s recommendation, later stated she did not understand what a variable annuity was or how much she had invested in the products,” according to the settlement agreement.

The California department order states that Jefferson National failed to employ a review of the “unaffiliated” investment advisor’s recommendations of annuities to the client.

The department alleges that Jefferson National “did not have sufficient protections in place to protect consumers. Its only involvement in this process was that its licensed insurance agent simply had to sign the purchase application for the annuity.”

“The process did not require the company to directly interact with consumers to confirm that they understood the terms of the annuities they were buying, or that the annuities were suitable for consumers’ needs,” the department adds.

In a stipulation document signed by Jefferson National’s president,  Jefferson National — the respondent in the case — notes that the company made independent life insurance agents available to answer the consumer’s questions about the annuities purchased, but that the consumer did not end up talking to the agents.

The California department “has not made a determination that respondent’s annuities were, in fact, unsuitable for the consumer, and respondent denies that they were unsuitable,” according to the stipulation document. “Respondent neither admits nor denies that its sales process inadequately ascertained suitability at the time the annuities were sold to consumer.”

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