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John Hancock to Settle Calif. Death Benefit Investigation Worth $20M; Ongoing Investigation in Florida
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In an April 22, 2011, article on Investmentnews.com written by Darla Mercado, she writes that California announced a settlement with John Hancock Financial Services Inc. after an investigation revealed that the carrier failed to deliver deceased clients’ death benefits promptly to the tune of $20 million.
This announcement follows a three-year audit investigation of 21 life insurers performed by the state’s controller, John Chiang, in an attempt to determine whether the carriers were complying with California’s unclaimed property laws.
The article goes on to say that those escheatment laws require businesses to submit lost or abandoned financial accounts to California after three years of inactivity in order to protect clients’ property from getting lost during mergers or bankruptcies, or from being depleted by fees. Other states have similar unclaimed property laws.
“While John Hancock is the first to be held accountable, it will not be the last,” Mr. Chiang said. “I am prepared to pursue all actions necessary — including litigation — to bring the rest of the industry into compliance.”
Investmentnews.com reported that California’s investigation revealed that life carriers failed to pay up death benefits to clients’ beneficiaries. Instead, they would draw from the policies’ cash reserves to pay premiums even after the client had died, according to the controller’s announcement. Once the policy was fully depleted, the insurers would cancel coverage.
The investigation also revealed that carriers did not routinely cross-check the owners of the dormant accounts with government databases listing the names of the dead. In other situations, the carrier knew the policy owner was dead but still failed to tell the beneficiaries, according to Mr. Chiang’s office.
Ms. Mercodo reported that in one of the John Hancock cases, the carrier issued a policy in 1963 to a client who died in 1999. John Hancock allegedly continued to pull premium payments from the cash reserves until the policy was canceled in 2009. Eleven years after the customer’s death, the carrier still hasn’t paid the beneficiaries or sent any of the death benefits to the state controller’s office, according to the controller.
In the Investmentnews.com article we learn that the same activity occurred with annuity contracts, according to Mr. Chiang’s office. John Hancock issued a contract in 1991 to a client who died four years later. The insurer’s files reveal that the deceased client’s mother called in 2002 to report the client’s death. Even though John Hancock noted in its files in 2005 that the client had died, the company allegedly didn’t pay out the death benefits to the client’s estate until 2009, the investigation revealed.
It was reported that aside from reuniting owners or their heirs with more than $20 million of death benefits and matured annuities, John Hancock also will have to restore the value of some 6,400 affected accounts going back to 1992 and pay California compounded interest of 3% on the value of the amounts held from 1995 or from the date of an affected policy owner’s death, whichever is later.
“John Hancock is outraged by the unfounded allegations and characterizations contained in today’s press release by the California controller’s office,” the insurer said in a statement. “Indeed, by its actions today, California has violated the very agreement that it negotiated and signed with John Hancock.” The insurer denies any allegations or characterizations of wrongdoing.
Carriers’ compliance with unclaimed property laws also will be the topic of a May 19 hearing in Florida, hosted by that state’s Office of Insurance Regulation. The office subpoenaed Metropolitan Life Insurance Co. and Nationwide Life Insurance Co, asking that the insurers send representatives to discuss the carriers’ practices.
It was reported that an investigation in Florida revealed that some carriers use the Social Security Administration’s death master file to find out about a client’s death and stop annuity payments, but fail to use that information to look into claims for death benefit. The state is a part of a national task force looking into carriers’ claims settlement practices.
“This appears to be an industry practice,” said Jack McDermott, a spokesman for Florida’s Office of Insurance Regulation. “We’re looking at a multitude of companies — some of the largest ones in the country.”
“Nationwide will review the information from the Florida Office of Insurance Regulation and will cooperate with their inquiry,” said spokesman Chad Green. “We stand by our business practices and are committed to serving the needs of our customers.”
“MetLife always fully cooperates with inquiries from regulators,” said spokesman John Calagna. “We will address whatever questions the Florida insurance department may have regarding this matter.”
Call a Securities Arbitration Lawyer for a free consultation on how to recover your investment losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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This information was obtained on FINRA’s website.
If you feel you have been a victim of these alleged fraudulent schemes of David Wayne Bombard, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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In a February 13, 2011, article for InvestmentNews, Liz Skinner writes that the summary prospectuses for variable annuities are supposed to help consumers make informed decisions about buying these complicated investments.
Hardly anyone understands the documents, despite years of industry pressure on the Securities and Exchange Commission to make them more investor-friendly. The Insured Retirement Institute, an annuity trade group, is not giving up.
They are working with SEC staff members on a draft summary prospectus that it first submitted to the agency two years ago, trying to make it a “plain-English” document that is about 10 pages long. A document of that length would be a far cry from the 200- to 300-page variable annuity prospectuses that are common today.
Throughout the next two months, the IRI will submit the sample prospectus to the commission’s staff for review, according to Lee Covington, the group’s senior vice president and general counsel.
“Today’s prospectus isn’t achieving a consumer goal,” he said. “The challenge is how to blend the objective of being a good disclosure document with one that is also consumer[-friendly] and written in plain English.”
December of 2009, SEC Chairman Mary Schapiro said that her staff was developing a simplified summary prospectus for VAs, but it never issued one. Eileen Rominger, who replaced Andrew “Buddy” Donohue as the director of investment management, took over that role this month but hasn’t mentioned the idea.
In a study by Cogent Research LLC for the IRI last March found that 89% of investors would be more likely to read a variable annuity prospectus if it had a short summary. Out of 961 surveyed retirees and pre-retirees with at least $100,000 in investible assets, only 20% read their investments’ prospectuses.
In addition to being helpful to investors, an easy-to-understand document may be even more important for financial advisers.
“These will make it easier for financial advisers to compare products,” Mr. Covington said. Advisers want clarity and confidence, and this is a tool that will help them with that, he said.
NO ONE READS THEM
Financial adviser Rick Bloom, a principal at Bloom Asset Management Inc., which has about $800 million in client assets, said: “No one reads the current variable annuity prospectuses.” He said he’d consider recommending variable annuities if the documents were easier to understand.
“If I can’t understand the ins and outs of the investments, I’m not going to get into them,” Mr. Bloom said.
The disclosure documents that were only one or two pages would be even better than the one about to be proposed, he said.
Neal Frankle, a financial adviser who sells only no-load variable annuities — and not very many of those — said he might be willing to re-examine variable annuities if they were easier to understand and compare. “If a variable annuity company called and said, ‘Here are three reasons why we think you should consider our product,’ I would owe my clients the due diligence to look at it,” said Mr. Frankle, whose Wealth Resources Group has $100 million in client assets.
Regulators already require plain-English versions of mutual fund prospectuses and disclosure documents for financial advisers, and a 1998 SEC handbook helps public companies write sections of their prospectuses in straightforward prose.
The SEC staff has asked the IRI for a sample prospectus that is written in plain English, with less legalese and fewer technical terms that are confusing to a normal consumer, according to Mr. Covington.
An IRI working group has brought in consultant Lightbulb Press Inc. to improve its sample summary prospectus. The consultant, which has worked on simplified-language projects for Texas state securities regulators and others, last month recommended making the prospectus understandable no matter what page is read first. Additionally, it found that the sample included some terms that were being used before they were defined, he said. Within the next two months, the IRI will finalize the document, run it by its own committee on federal regulatory affairs and submit it to the commission’s staff for review, Mr. Covington said.
“We want to get a sample summary prospectus that everyone thinks is good for the consumer,” he said.
The variable annuity companies support the move because consumers will understand their product better and the smaller prospectuses will be cheaper to prepare, print and mail. Even after incurring some costs to translate their prospectuses into plain English, the expense should be less than the hundreds of thousands of dollars companies now spend each year, Mr. Covington said. A new prospectus should also reduce consumer complaints. People don’t want these long documents that they know they’ll never read, and they worry about wasted trees, Mr. Covington said.
“We continue to work to get it right for consumers,” he said. “No process is as fast as you want it to be, but we’re pleased with the commitment that the SEC has on it.”
Do you feel you were alledgedly scammed in the variable annuities market by your broker? You may have legal rights to recover your money from the broker or brokerage firm that sold you your annuities. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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Claude Steven Mosley (CRD #1161832, Registered Representative, Myrtle Beach, SC) submitted a Letter of Acceptance, Waiver of Consent in which he was fined $15,000 and suspended from association with any FINRA member in any capacity for four months. Without admitting or denying the findings, Mosley consented to the described sanctions and to the entry of findings that he sold variable annuities issued by an annuity and life insurance company to a number of clients while at a member firm, and upon joining another member firm, he was appointed to sell the same annuity and life insurance products, and sought to have the variable annuities that he had sold while at the previous firm transferred to his new firm. The findings stated the the annuity and the life insurance company did not permit the block transfer but some of Mosley’s customers submitted change-of-dealer forms to the company. The findings also stated that Mosley contacted the company and, without specific customer authorization, reallocated the sub-accounts for numerous variable annuities belonging to many individulas including customers of the second firm that he had sold while at the previous firm. The findings also included that Mosley had not obtained written authorization for the use of discretionary authority from the customers at his second firm, and the remaining customers whose sub-accounts were reallocated were not customers of his second firm but had remained with Mosley’s first firm. FINRA found that Mosley had not sought his second firm’s prior approval to engage in these transactions for non-customers.
The suspension is in effect from Dec. 6, 2010, through Apr. 5, 2011. (FINRA Case # 2009019272201)
This sanction appeared on the FINRA website’s Disciplinary Actions for January, 2011.
If you have been a victim of the alleged fraudulent schemes of Claude Steven Mosley, or a similar situation, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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In a New York Times article “annuities” are explained as a basic staple of modern portfolios, which are the financial equivalent of a backstop to guarantee a minimum of income in retirement. They work like an old-time corporate pension plan, paying out a regular amount of money over the course of retirement. The big difference is that amount you receive is wholly dependent on how much you put into the annuity.
An annuity is a contract with an insurance company that makes payments at regular intervals for a set period of time. The classic fixed-annuity provided people a set payment for however long they lived — from a few months to decades. An insurance company’s actuaries took their best guess on your life expectancy while you hoped to outwit them and collect a check into your 90s.
To make annuities more appealing — and to bring in more money — insurance companies created more sophisticated types of variable annuities.
Few annuities are structured this way anymore. One reason is people have realized that a static payout is not great. For one thing, it does not account for inflation: $1,000 a month today will probably not buy as much in 10 or 20 years.
Many of these annuities offer the option of a higher payment if the value of the underlying securities rises yet lock in a minimum payment if they fall.
One popular annuity gives people a sense of flexibility by allowing them to withdraw some or, in certain cases, all the principal, if they need it. In living longer, people will require income for more time but they are also increasing their chances of contracting catastrophic illnesses, from cancer to Alzheimer’s, that carry huge medical costs. The guarantee of regular payments is comforting. But the need for a lump sum at a particular time can sometimes be more practical.
Other popular models are structured to continue after the original beneficiary’s death. A “joint-survivor” clause stipulates that if the husband dies first, the annuity continues to pay out to his wife through her lifetime, while another provision leaves some of the remaining principal to other heirs.
IMMEDIATE VERSUS DEFERRED
Two terms that are often used when discussing annuities. The difference is simple but often obscures the vast array of annuities being offered. With an immediate annuity, a person pays a lump sum and begins receiving income right away. That’s the immediate part. In the past, these were usually life-only annuities, meaning if you died a week later, that money was gone. Now, immediate annuities have all the variations mentioned above.
The deferred annuity has two phases — accumulation and distribution. Over a period of time, a person builds up the value of the annuity and then selects a time to start receiving payments from it. People who change jobs, for example, could opt to roll their Individual Retirement Accounts into an annuity and let the money grow there. Or they could make contributions to the annuity for a set period of time as they would with any savings plan. When they have accumulated enough to finance their goals, they can decide when they want to start receiving payments. They can start and stop the payments at will, though the idea is that they will wait until retirement.
ALLOCATION TO ANNUITIES
Regardless of what type of annuity you select, the main question is how much of your portfolio should you put into one? The rule of thumb is to use annuities to cover your basic living expenses. Most providers recommend that you put no more than a third of your assets in annuities. Others limit retirees to 75 percent. Financial advisers not associated with insurance companies will generally argue for putting little in annuities: they feel they can get better returns through a diversified portfolio of securities. That’s a harder sell, though, after two rounds of huge losses in the stock market in one decade.
BENEFITS AND LIMITATIONS
Benefit of putting a chunk of your nest egg into annuities is the guaranteed payment. Whether the economy is good or bad, an annuity pays a minimum amount of income every month. You may have to put a large part of your nest egg into the annuity to receive the amount you need to live on, but you know it will be there.
There are four main downsides to annuities.
First, they are expensive. A fixed annuity typically pays out no more than 5 percent of the principal each year. That means you would have to put $100,000 into a fixed annuity to receive an annual payout of $5,000. Even the most frugal retirees would struggle to live on $400 a month. To receive, say, $2,000 a month, they would have to invest $500,000.
Second, the other cost is the fees associated with the annuities. One rule of thumb is the more guaranteed features attached to an annuity — from inflation adjustment to joint survivor — the higher the cost. These costs, as with mutual funds, are embedded in the annuity itself. They do not come in an upfront fee but are hidden in the payouts.
The third problem is expectations. People who bought annuities with payments that grew as the underlying securities grew could be in trouble. Those payouts are not going up when the stock market loses 40 percent of its value in one year. Likewise, when government policy makers are more worried about deflation than inflation, payments that adjust for the cost of living are going to remain at the guaranteed minimum.
And finally, the government taxes distributions from annuities as ordinary income, with rates that run up to 35 percent. Money put into a brokerage account is taxed at the capital gains rate.
Like any part of a portfolio, annuities are best taken in moderation. They are a great way to guarantee a certain amount of fixed income in retirement. But if overdone, they could rob a portfolio of needed flexibility.
Annuities can be complex–make sure you are educated before purchasing. Given the stakes now that your portfolio could be down double digits, please don’t buy any financial product, index annuity or otherwise, without getting a second (or third) opinion from someone who has no stake in whether you close the deal.
If you feel you have been a victim of an alleged annuity fraud please feel free to contact an attorney, at no cost to you, to discuss your options. Call a FINRA Securities arbitration lawyer at 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA and the NFA.
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