Annuity Fraud Alert in Arizona
I’ve hinted at this a few times this year and now it’s time to tell the story. It’s a very concerning case of doing things the wrong way in the financial services business. The agents involved advertise themselves as fiduciaries and claim to be whistleblowers who expose unethical annuity sales practices. This is nothing short of hypocrisy at its finest. We have an ongoing complaint with the Arizona Department of Insurance so I’m keeping names out of this. Once it is settled I’ll decide whether to expose these guys publicly.
I’m only trying to help a retired couple straighten things out and I’ve been threatened with a defamation lawsuit if I don’t withdraw the complaint. That isn’t too concerning to me because I only dealt with the facts that I’ll share today. I can work through the paper trail and find all the evidence needed. I have no relationship with the agents involved so it’s not personal. I’ve spoken with an attorney representing the agents and he initially said that he’s been representing one of the guys in matters like this since the early 2000s. That’s interesting to me because after 23 years in the business I haven’t needed an attorney even once.
My first concern is to help find a good solution for the couple that contacted me and second is to find others who were treated similarly. You’ll never be able to convince me that this only happened one time. These agents did a tremendous amount of annuity business and it stands to reason that others have been similarly victimized. Anyone who sees this that thinks they had a similar experience can contact me and I’ll help figure it out.
John and Jane bought two annuities from American Equity in 2021 from a different agent. They were not happy with being charged a fee and actually losing money so they sought help from the new agents who were conducting dinner seminars. After just one year the new agents recommended that John and Jane surrender their contracts at American Equity and purchase new contracts at National Western Life. Initially they put roughly $650K into two contracts but only $580K was sent to purchase the new contracts. After one year they had realized losses of right around $70,000.
Only one year passed before these new agents came up with a better idea. Rates were up and these guys suggested they could improve the National Western contract after a short time. They convinced John and Jane to surrender the contracts again and move the money over to Sentinel Security, the B+ carrier that got into a little bit of trouble late last year. This time, only $526K was transferred to the new contracts. Part of the reduction in cash value is due to rider fees that weren’t necessary but I calculated total losses over four years to be just shy of $120,000. These are no loss products and it’s supposed to be safe money so how do they only have 80% of the money after four years? It’s an absolute disgrace! Bonuses on the new products will make the picture look a little better but there’s no doubt they had a major reduction in cash value over the years.
How is this allowed to happen? Some of you may remember a podcast episode from last year when I talked about the guidelines for Surrendering an Annuity and buying a new one. A process is in place across the industry to ensure that if annuities are swapped out, the new contract must have a material benefit for the client. If no benefit can be demonstrated then the new company will reject the application. A competitive comparison is required as part of the paperwork so an objective decision can be made. Insurance companies do not care about the agent’s or consumer’s opinion. In this case we’ll never know because the correct procedure was not followed. On the application, the agent attested that the new transaction was not replacing an annuity. He was able to avoid the process that would have objectively verified the benefit of the new contract. The link below will show how the replacement was misrepresented on the application and the fraud alert at the bottom shows that this omission is taken very seriously.
Click here to see the agent’s certification in the application
There’s another wrinkle to this as well. Even if the questions were answered incorrectly, the new company would see money being transferred from another insurance company. This would raise a definite red flag and the receiving company would likely request additional documentation. To get around this possibility, the agents surrendered one contract and transferred the money to a Charles Schwab account. When the new contract was purchased the funds looked like any other transfer from a brokerage account. This easily concealed the source of funds and completed the unethical transaction.
The additional problem here is that it now involves a major brokerage company that is responsible for overseeing the account. They could have possibly stopped the transaction or made sure that the appropriate procedure was followed. Now we look at the possibility of a complaint with the SEC so it could get really messy. I emailed an executive and compliance officer at the company but have not received a response. An SEC complaint will certainly get their attention and the reason I want to do that so badly is because this company could easily identify other instances of this type of transaction with these agents.
Only an extremely naive person would think that this only happened one time. It’s possible that these guys built a large business and collected substantial compensation for doing this all the time. We may never know how deep it goes but I’ll stick with the couple I already know through the whole thing. If the opportunity to help anyone else comes about I’ll give them the same attention. It’s heartbreaking for me to work so hard at doing things the right way to see such abuse of retirees in this country.
We have laws in place that were not followed. These transactions should be reversed so that John and Jane are restored to their initial position. Everybody tells me that there’s little chance that will happen. If that’s the case then I’ll lose a lot of faith in this business. What good is a law without enforcement? Whether you’ve been involved in something like this or you want to avoid it, learn to ask the right questions and at the very least get a second opinion. I can only promise that no one is treated like that here.
I’d appreciate some comments below so you can tell me what you think should happen to these advisors.
Bryan
Watch Episode 173: Annuity Fraud Alert in Arizona
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Last Updated on March 21, 2025 by Bryan Anderson
I have been sold two annuities by the same agent. One with NASSAU, another with SILAC. THE funds for one came from selling stocks and mutual funds previously with Fidelity, the other was premature surrender of a MASS MUTUAL ANNUITY . The agent convinced me on paper that the surrender charges would be made up by a bonus. Since he is a deacon in his church I felt he was trustworthy.
What is your opinion of these companies and how do they rate for stability of payouts. I am a single lady, almost 87 and bought both annuities 2 years ago.
The brokers in your article who churned the accounts should have to make restitution.
Bryan,
I emailed you before regarding getting in touch with Roccy DeFranchesco, who is an attorney and is very knowledgeable about the annuity business. He may have the right network and resources to help your clients resolve their issues with their annuity policies and the respective agents and carriers. You cannot do it alone. This is a massive problem. You need to have a strategy to move the issue forward.