Articles Tagged with annuities

shutterstock_175298066The securities lawyers of Gana Weinstein LLP are pleased to announce an award on behalf of their client against Centaurus Financial, Inc. (Centaurus) in the amount of $150,000 plus costs.  The complaint was filed The Financial Industry Regulatory Authority (FINRA) and involved multiple brokerage firms that hired advisor Ahmad Hashemian.

The Claimant alleged that Hashemian invested over $2,000,000 in exclusively high cost products and 50% of those investments were in alternative investments such as private placements, oil and gas partnerships, and non-traded real estate investment trusts (REITs).  The other 50% was invested in variable and equity-indexed annuities.  All of these investments come with high costs and historically have underperformed even safe benchmarks, like U.S. treasury bonds.  Brokers, enticed by the high commissions, often times misled their clients into investing in these products.

In this case the panel found that “the investments Hashemian recommended while at Centaurus were not suitable and in Margaret Polito’s best interests. Margaret Polito also provided sufficient evidence to meet her burden of proof to support her allegations in her Statement of Claim that the actions by Hashemian, for which Centaurus is responsible, constitute fraudulent and negligently made material misrepresentations and omitted material information in the sale of the investments to Margaret Polito.”  Award Can Be Found Here.

shutterstock_188631644The securities lawyers of Gana Weinstein LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against broker Robert Wamhoff (Wamhoff).  According to BrokerCheck records Van Patter has been subject to at least seven customer complaints.  The customer complaints against Wamhoff allege securities law violations that including unsuitable investments and breach of fiduciary duty among other claims.  Many of the complaints involve direct participation products (DPPs), variable annuities, non-traded real estate investment trusts (REITs), and other alternative investments.

Our firm has represented many clients in these types of products.  All of these investments come with high costs and historically have underperformed even safe benchmarks, like U.S. treasury bonds.  For example, products like oil and gas partnerships, REITs, and other alternative investments are only appropriate for a narrow band of investors under certain conditions due to the high costs, illiquidity, and huge redemption charges of the products, if they can be redeemed.  However, due to the high commissions brokers earn on these products they sell them to investors who cannot profit from them.  Further, investor often fail to understand that they have lost money until many years after agreeing to the investment.  In sum, for all of their costs and risks, investors in these programs are in no way additionally compensated for the loss of liquidity, risks, or cost.

Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client.  In order to make a suitable recommendation the broker must meet certain requirements.  First, there must be reasonable basis for the recommendation the product or security based upon the broker’s investigation and due diligence into the investment’s properties including its benefits, risks, tax consequences, and other relevant factors.  Second, the broker then must match the investment as being appropriate for the customer’s specific investment needs and objectives such as the client’s retirement status, long or short term goals, age, disability, income needs, or any other relevant factor.

shutterstock_114128113The securities lawyers of Gana Weinstein LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority’s (FINRA) against broker Michael Blueweiss (Blueweiss). According to BrokerCheck records there are at least 6 customer complaints against Blueweiss. The most recent customer complaint against Blueweiss filed in November 2014 alleges that Blueweiss concentrated the client in structured products, annuities failed to disclose surrender penalities, and churning. Another customer complaint filed in February 2011 alleged that unsuitable investments in UBS reversed convertibles linked to the common stock of Lehman Brothers.

Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client. In order to make a suitable recommendation the broker must meet certain requirements. First, there must be reasonable basis for the recommendation the product or security based upon the broker’s investigation and due diligence into the investment’s properties including its benefits, risks, tax consequences, and other relevant factors. Second, the broker then must match the investment as being appropriate for the customer’s specific investment needs and objectives such as the client’s retirement status, long or short term goals, age, disability, income needs, or any other relevant factor.

The number of customer complaints against Blueweiss is high relative to his peers. According to InvestmentNews, only about 12% of financial advisors have any type of disclosure event on their records. Brokers must publicly disclose certain types of reportable events on their CRD including but not limited to customer complaints. In addition to disclosing client disputes brokers must divulge IRS tax liens, judgments, and criminal matters. However, FINRA’s records are not always complete according to a Wall Street Journal story that checked with 26 state regulators and found that at least 38,400 brokers had regulatory or financial red flags such as a personal bankruptcy that showed up in state records but not on BrokerCheck. More disturbing is the fact that 19,000 out of those 38,400 brokers had spotless BrokerCheck records.

shutterstock_189135755As long time readers of our blog know, this is not the first time we have alerted investors to the potential pitfalls to investing in equity indexed annuities. Recently, the Wall Street Journal ran an article concerning a probe being conducted by Sen. Elizabeth Warren (D., Mass.) regarding sales incentives for annuities products issued by insurance companies. The senator’s investigation comes on the heels of a speech given by Luis Aguilar, Commissioner to the Securities and Exchange Commission (SEC), before the North American Securities Administrators Association (“NASAA”), stating that the SEC is looking closely at sales practices with respect complex securities including equity-indexed annuities, leveraged and inverse-leveraged exchange traded funds, reverse convertibles, alternative mutual funds, exchange traded products, and structured notes.

According to news sources, the senator’s focus is on indexed annuities which have become widely known within the industry for granting perks to agents. Sen. Warren is said to have quoted from some of the marketing materials aimed at insurance agents describing sales incentives including “four days in the heart of California’s wine country at the prestigious Calistoga Ranch and Spa”; a trip to South Africa to visit Cape Town and Kruger National Park; and the ability to win “tour the Mediterranean on a private yacht, like royalty, celebrities, and the wealthy elite.” According to the report, Sen. Warren is concerned that earning perks may provide a greater incentive for making recommendations that acting in their clients’ best interest.

Equity indexed-annuities promise a return tied to a stock-market index while protecting against losses if the market falls. Sounds good right. Except there are serious limitations built into the products which make them both very expensive and limited to almost CD like returns. Accordingly, if the market has a blockbuster year, your equity-linked annuity will not perform in kind.

shutterstock_143094109As reported by InvestmentNews, A Financial Industry Regulatory Authority (FINRA) official recently expressed concern over the sale of variable annuities as the products continue to evolve and become more complex. Carlo di Florio, chief risk officer and head of strategy at FINRA was quoted as stating that variable annuities are now taking on features that resemble complex structured products. Structured products typically have features such as caps that limit returns during market rallies and floors that limit losses during market slumps. Now these features are appearing in variable annuity products. Variable annuities are already extremely complex products that are not suitable for all investors. Adding yet an additional level of complexity only heightens concerns that investors must understand what they are buying when they are recommended these vehicles.

As a background variable annuities are complex financial and insurance products. Recently the Securities and Exchange Commission (SEC) released a publication entitled: Variable Annuities: What You Should Know. The SEC encouraged investors considering a purchase of a variable annuity to “ask your insurance agent, broker, financial planner, or other financial professional lots of questions about whether a variable annuity is right for you.”

A variable annuity is a contract an investor makes with an insurance company where the insurer agrees to make periodic payments to you. A variable annuity may be purchased either in a single payment or a series of payments over time. In the annuity account the investor chooses investments and the value of the annuity “varies” over time depending on the performance of the investments chosen. The investment options for variable annuities are generally mutual funds.

Broker Neil Winterrowd (Winterrowd), formerly of J.P. Turner & Company, LLC (“JP Turner”), has been barred by the Financial Industry Regulatory Authority (FINRA) concerning allegations that from August 12, 2009, through September 21, 2011, Winterrowd misappropriated approximately $1.5 million from at least four different customers and used the funds for his own purposes.  FINRA’s action against Winterrowd is the latest in a number of recent actions against brokers formerly associated with JP Turner, many of which highlight allegations of supervisory failures at the firm.

Winterrowd was associated with Crown Capital Securities, L.P. from 2004 through August 2009.  In August 2009, Winterrowd transferred to JP Turner until September 21, 2011 at which time he was discharged from JP Turner for improper handling of customer funds.  According to Winterrowd’s BrokerCheck, there have been seven customer complaints filed against the broker.

FINRA alleged that Winterrowd provided a variety of financial services to his clients, including annuity products, life insurance, and fixed annuities.  According to FINRA, Winterrowd’s customers held brokerage accounts at JP Turner but were also sold products that did not need to be sold through a registered firm.  FINRA’s investigation uncovered that Winterrowd misappropriated approximately $1.5 million from at least four different customers.  FINRA found that broker accomplished the misappropriations by directing withdrawals from customer accounts to a company under his control.  According to FINRA, Winterrowd obtained the funds through partial withdrawals, surrenders, and the proceeds of a death benefit from the annuity products sold to customers.  In addition, FINRA alleged that checks were made payable to Annuity Investment Group, an entity owned and controlled by Winterrowd.  After funds were deposited in the bank accounts of Annuity Investment Group, FINRA alleged that Winterrowd improperly and without his clients’ knowledge or consent converted funds for his own benefit.