Insurance to Investment Scam

By: Daniel Chen | July 9, 2009 | Bad Financial Advice, Conflicts of Interest, Deceptive Sales Practices, Investor Information

I recently attended a continuing education seminar for insurance and securities licensed representatives and happen to be sitting at a table with a group of insurance salesman turned investment advisor. During the CE session as well as lunch, a group of them from the same office happen to talk about their latest and very successful commission producing sales ploy. I asked a couple of questions and these individuals were more then happy to share with me how it goes, they were actually proud of it.

Basically this is how they go about it. The agent will approach their current clients to talk about the downturn in their assets and how it has affected their retirement funds. After they have stimulated the fear in these clients, the agent then proposes an investment option to help them regained their lost assets. The agent proposes that the client liquidate thier current cash value policies [the same ones that the agent sold them years ago when the client was younger, but now is not getting paid on any longer, because they were paid first year commissions upfront] and purchase a variable annuity with guarantee income benefits [so the agent can get paid again with upfront commissions] in order to supplement their income at the time of retirement.

The basic idea of using variable annuities with guarantee income riders as part of an income strategy is not the issue, it’s the fact that they now expose their clients to the risk of no death benefit for heirs as was the original intention that is absolutely irresponsible. Some agents however will address this by selling another life insurance policy but now at a higher rate while the agent makes new commissions again!

If your representative starts to suggest moving existing assets around be sure that they are actually adding value to the issue and not just generating more commissions at your cost.

One Response to “Insurance to Investment Scam”

Michael Chamberlain

September 9th, 2009 at 1:08 pm

Let me understand. The insurance agents were also RIA’s?
If so, in their dealing with clients they are acting only as agents (salesmen) and not as advisor’s.
This is a yet another example of when commissions are involved the clients can get screwed.
Thanks for sharing!

Mike Chamberlain CFP(r) RIA
Sacramento/Santa Cruz CA

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Investor Watch Dog is a weblog designed to inform investors about hidden risks when they invest assets based on the recommendations of financial planners, financial advisors, money managers, insurance agents, and investment sales representatives. Some of Wall Street's biggest investment risks result from Ponzi Schemes, investment bubbles, conflicts of interest, bad advice in bear markets, lobbyist activities that promote industry interests, bad investment products, and anti-investor business practices. While some of these risks are worthy of front page headlines, millions of investors assets are much more frequently exposed to less newsworthy but exponentially more harmful investment scams, financial fraud, illegal investment products, bad financial advice, bad investment recommendations, misrepresentation, omission, abuse of trust, deceptive sales practices, and breach of fiduciary duties. The role of Investor Watch Dog is to shine a spotlight on legal and illegal business practices that undermine the financial interests of investors, retirees, business owners, professionals, executives, and other types of consumers who rely on Wall Street and its financial professionals for the advice and services they need to achieve their financial goals.