According to a complaint filed by the State of Illinois Securities Department Thrivent Investment has been accused of engaging in replacing its client’s existing variable annuities for new variable annuities which requiring clients to pay surrender charges and various fees that were not appropriate for the client. Thrivent Investment violated Illinois law by allegedly: (1) failing to maintain and enforce a supervisory system and adequate written procedures to achieve compliance with the securities laws; (2) failing to adequately review the sales and replacements of Variable Annuities for suitability; (3) failing to enforce its written procedures regarding documentation of sales and replacements of Variable Annuities; and (4) failing to adequately train its salespersons to variable annuity transactions.
The lawyers at Gana LLP have represented investors in their claims against brokerage firms for unsuitable investments in annuity products. Often times the benefits of variable annuities are outweighed by the terms of the contract that include exorbitant expenses such as surrender charges, mortality and expense charges, management fees, market-related risks, and rider costs.
According to the complaint as of December 31, 2016, for that year Thrivent Financial sold $2,902,000,000 of new Variable Annuity contracts nationwide. The firm was 11 out of 93 insurance company issuers for nationwide sales of Variable Annuities in 2016. In addition, for the period of August 1, 2013 through July 31, 2014, Thrivent Investment had nationwide commission sales revenue of $110,267,896 on the sale of variable annuities. Variable Annuities represented about 62% of Thrivent Investment’s total revenue, and 99% of all Variable Annuity sales were proprietary in that they were issued and offered by affiliates of Thrivent Investment.
According to the complaint, developed a new annuity product with a feature called the GLWB rider which allows the investor guaranteed withdraws after the age of 62 even if the value of the annuity is depleted. From January 2011 to June of 2012 and July 2013 through June 2014, Thrivent Investment transacted, in Illinois, approximately 282 replacement/exchange transactions of legacy annuities for new Thrivent Financial Variable Annuities with the GLWB rider.
The reason given by the brokers for each and every one of these transactions was that the client wanted and would benefit from the GLWB rider. However, the State of Illinois found that no economic analysis of the transactions was even conducted to determine if the client would benefit from the GLWB rider as stated.
The State of Illinois reviewed a number of transactions and found that the transaction was not beneficial for the clients. In addition, the department also analyzed transactions based upon a hypothetical man and woman both age 62 with a $100,000 account value and compared the GLWB rider to a 20 year payout. The result was a monthly pay out for the old policy was always higher than the payout for the new policy of a 20 year period.
The state Illinois found that Thrivent Investment and its brokers failed to calculate the economic benefit if their clients held and annuitized their existing Variable Annuity versus replacing the Variable Annuity with another Variable Annuity having a GLWB rider. Further, the review by supervisors and the suitability team was inadequate and lacked followup. Rather than conduct an independent suitability review, the State of Illinois found that supervisors primarily relied upon the broker’s determination of suitability.