TWO-FRONT ILLUSTRATION WAR INFRONT a previous call. “So under what scenario would you say ‘Well, you’ve got a misleading illustration to begin with, but we don’t want to confuse you, so we’re going to let the company continue to provide a misleading illustration on an ongoing basis’?”
Annuity Illustration Lawsuits
Illustrations are also drawing controversy on the annuity side, although the controversy rests equally on the use of proprietary indices. A class-action lawsuit
claims companies are using these indices to manipulate illustrated returns. An expanded class-action lawsuit alleges that Security Benefit Life defrauded consumers by implementing a “fraudulent scheme” involving a proprietary index used in two fixed indexed annuities. The lawsuit was filed in January in the U.S. District Court for the Southern District of Florida. Plaintiffs say Security Benefit manipulated clients to invest most of their FIA account values in the company’s
“Illustrations are a necessary part of the sales process. They let a client know how the policy could perform over time. … It is the advisor’s job to communicate the possibilities and educate the client.” — Charles C. Adi, financial advisor, Blueprint 360
“Almost every illustration is from la-la land. Assumptions are wildly optimistic and the sale is made easier by showing how ‘rosy’ the future will be if you buy this product. IUL seldom makes sense for the vast majority of retail clients.” — Kashif A. Ahmed, CFP, American Private Wealth
“IUL has a lot of moving parts. Some very bright people have told me it is too convoluted. The paper doesn’t care what is printed on it.” — D. Scott Brennan, The Brennan Group
synthetic index, which performed far worse than portrayed. “Security Benefit’s aggressive tactics and misleading sales scheme yielded immediate financial rewards for Security Benefit and its parent, Guggenheim Partners,” the lawsuit reads. The lawsuit targets two of Security Benefit’s FIAs, the Total Value and Secure Income annuities, both of which were offered with proprietary indices that the company advertised as “capable of producing double-digit returns,” the lawsuit alleged. Generally, annuities are marketed with a cap or participation rate that leaves owners with less than 100% of the market gains. In exchange, the client is protected against market losses.
‘Locked In’
The plaintiffs say Security Benefit marketed its TVA products as “uncapped” and with a “100% participation” rate. “Once consumers purchased the annuities, they were locked into them by onerous surrender penalties, by bonus claw-back provisions, and by the very structure of the Synthetic Indices themselves, which were designed to credit interest only at the end of fixed periods ranging from two to five years,” the lawsuit reads. Attorneys for the Florida plaintiffs allege that Security Benefit was able to perpetuate “a virtual shell game of misleading illustrations depicting unattainable future returns based on backcast modeling,” the lawsuit reads. Michael T. Castino, director of public relations for Security Benefit, sent InsuranceNewsNet a brief statement: “SBLIC believes that it has substantial defenses to the claims alleged and intends to vigorously defend itself in the action.” InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@ innfeedback.com. Follow him on Twitter @INNJohnH.
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