Ohio National broker pitched VA trades as 'infinite banking' per FINRA

[DHK]

In the words of the Knight in Indiana Jones: "He chose poorly."

Per the article: "The Ohio National broker-dealer failed to detect that from 2014 to 2017, the sales rep recommended the liquidation of retirement funds to purchase high-fee variable annuities, followed by the withdrawal of funds from those annuities to purchase whole life insurance policies, according to Finra."

"According to Finra, no one at the firm conducted a suitability analysis of the broker’s recommended investment strategy as a whole."

"For example, the broker “routinely recommended his customers take withdrawals from their variable annuities shortly after they were purchased, causing them to incur significant surrender charges, tax penalties, and additional charges,” according to Finra."

Ohio National broker pitched VA trades as 'infinite banking': Finra - InvestmentNews

After reading THIS article... there was simply no excuses. I don't know what happened to him, but he certainly brought this on himself.

The Rare Case Of The Unsuitable Strategy | JD Supra

 

[DHK]

Btw, that second link has this paragraph:

Second, I get that the final step in the strategy – the purchase of the whole life insurance – did not take place at O.N. Equity, so the firm may not have known about it. (I know this because O.N. Equity went to court to fight to keep complaints about the whole life insurance purchases out of four customer arbitrations that Mr. Wesselt’s conduct triggered. According to the court’s decision determining that the insurance piece of the strategy was not subject to FINRA arbitration, “O.N. Equity is not in the business of selling life insurance, is not licensed to sell insurance, and does not appoint life insurance agents.”) But, O.N. Equity certainly could have seen the early and sizable withdrawals from the recently purchased annuities across his customer accounts.

I call bull****. When Ohio National life production counts towards broker/dealer production and that the broker/dealer is in the same building as ONL... that's just a "regulatory convenience" trying to say that the broker/dealer had no knowledge.

 

[DayTimer]

I call bull****.

How's it going for you since you moved to ON? You don't sound ... completely happy.

 

[DHK]

I have one case I want to place with Ohio National - a rated case. Then I'll get my remaining educational reimbursement for my 2 CLU courses.

After that... I don't see any more cases going to Ohio National. I've got another life carrier, I'll be adding PennMutual soon enough, I've got Athene for annuities, and I have an RIA affiliation.

I'm good and it's a completely independent business model.

 

[scagnt83]

As I said in a different thread, ON has been extremely lenient when "assessing" suitability on both the Life and Annuity sides.

A former partner at an ON GA called their suitability reviews "virtually non-existent" over the past few years. Basically rubber stamped in his opinion.


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the sales rep recommended the liquidation of retirement funds to purchase high-fee variable annuities, followed by the withdrawal of funds from those annuities to purchase whole life insurance policies, according to Finra."

Is this not what Breakaway League did?

(minus the surrender fees (I think) and using IAs from non-ON carriers instead of ON VAs)


From the article you posted:

FINRA retired the old suitability rule – NASD Rule 2310 – and replaced it with shiny new FINRA Rule 2111 back in 2012 was the broadening of the scope of the rule to encompass not just recommendations to buy or sell specific investments, but, as well, recommendations involving investment strategies (which could include a combination of securities and non-securities).

By that definition, how do you see the above strategy (401k to Annuity to WL) not falling into the scope of FINRA Rule 2111 and being a "securities" recommendation for an "investment strategy"?

 

[scagnt83]

I call bull****. When Ohio National life production counts towards broker/dealer production and that the broker/dealer is in the same building as ONL... that's just a "regulatory convenience" trying to say that the broker/dealer had no knowledge.

I agree 100%. Even IF the BD didnt know, the company as a whole knew. The life side certainly knew it. The regional offices that track/monitor producers overall production knew it.

Heck, the entire industry knew it was going on... and the BD it was happening at didnt? What a pathetic excuse.

The surrender charges alone, that much and that frequent, should have triggered extensive reviews of his cases. Its clear that ON didnt give a sh*t. Of course, thats not a surprise considering how bad they screwed over their advisors.

 

[DHK]

Is this not what Breakaway League did?

(minus the surrender fees (I think) and using IAs from non-ON carriers instead of ON VAs)

Nope

 

[DHK]

By that definition, how do you see the above strategy (401k to Annuity to WL) not falling into the scope of FINRA Rule 2111 and being a "securities" recommendation for an "investment strategy"?

Some technicalities here.

First, this broker moved the money from 401(k) to a variable annuity. That's done all the time - we know that.

I initially thought that, assuming there was a modicum of care and concern for the client, that this was the way to move money from the VA to the WL.

I was wrong.

Let me quote the scenarios of the 2nd link I had posted:

In 2014, Customer 1 was 43 years old, with “substantial daycare expenses” and a 401(k) worth $220,000. He had her liquidate the 401(k), and used the proceeds to buy an X-share variable annuity. He then had her withdraw $225,000 from the annuity to buy whole life insurance (that amount included surrender fees of $11,998 and tax withholding of $71,564). The early withdrawals also caused her to incur a tax penalty. Now she can’t afford her life insurance premiums, and her annuity, which held most of her retirement savings, is worth less than $10,000.

Customer 3 was 59 years old in 2014 and nearing retirement. She approached Mr. Wesselt regarding the purchase of an apartment and assisting a child with student loan repayment. Wesselt had her take $58,000 from her 401(k) and buy a variable annuity. Six months later, he had her buy whole life insurance using her annual withdrawals from the annuity. Each withdrawal was $16,840, which included $12,000 for the insurance premiums, $840 in surrender charges, and tax withholding of $4,000. Not surprisingly, because each withdrawal depleted the value of the annuity, this was sustainable for only three years. By June 2017, the variable annuity had declined from its original value of $57,955 to $8,489.

There was NO standard of care or consideration for the client's financial well-being, based on these two stories. (There are more, but these make the point.)

When *I* am doing my cases, yes, we can move money from a 401(k) to a FIA. I chose the one that I wanted to fund a WL over a 10-year period. That annuity is the Athene Agility 10 contract. Why that one? 10% free withdrawal based on the initial contract value, not the anniversary value. So I can predict and plan the withdrawal each year for 10 years.

I don't see ANY kind of suitability or recommendation review standard at ALL.

If he was in California, he would've been arrested. Period.

 

[scagnt83]

Nope

That is exactly what you described in the other threads.

Take retirement funds, put into IA with Income Rider, use withdrawals/income payments to fund WL.

 

[scagnt83]

When *I* am doing my cases, yes, we can move money from a 401(k) to a FIA. I chose the one that I wanted to fund a WL over a 10-year period. That annuity is the Athene Agility 10 contract. Why that one? 10% free withdrawal based on the initial contract value, not the anniversary value. So I can predict and plan the withdrawal each year for 10 years.

I don't see ANY kind of suitability or recommendation review standard at ALL.

I made the caveat (without the surrender fees), and using an IA instead of a VA.