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

[Allen Trent]

The part that kills me... and I mean this... it kills me that he was a super-producer doing 800-1200 applications per YEAR.

I have heard him speak. He spoke about the fundamentals of this business. He encouraged doing the right thing. I believe that he did exactly that for the majority of his career.

I don't know what changed. I don't know how you can be in this business for over 20 years... and have THIS kind of issue?

Anyone can look up his brokercheck record.
- In 97, he had an issue that he was remorseful about (signing a client's signature) and he was let go from that particular firm.
- In 08, a customer dispute was denied.
- In 2016, began all the settlements of disputes.

Now, I do believe that there CAN be a point in time that one cannot avoid getting a complaint. The longer we're in this business, it can be inevitable. I get that.

But these were acts of commission (not just earnings) but willfully done.

Makes me wonder what changed? What happened?

If you watch this podcast with Caleb Guilliams, you wouldn't believe that he was malicious in working with (some of) his clients.

In every case like this I have seen in my career of good agents gone bad or ponzi scheme crooks, every single one of them started with a gambling/drug/alcohol/excessive lifestyle issue. One little item escalated & snowballed into a full blown fraud & deception

 

[DHK]

In every case like this I have seen in my career of good agents fine bad or ponzi scheme crooks, every single one of them started with a gambling/drug/alcohol/excessive lifestyle issue. One little item escalated & snowballed into a full blown fraud & deception

That... would be an error in judgment that can easily compound into multiple areas of life.

Makes perfect sense. I hope that's not the real case. I hope his marriage and family is okay. I hope that he's not in a serious depression.

But hope doesn't make things right for those who got royally screwed.

 

[Chuckler]

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.

If he was in China, he would be executed.

 

[pfg1]

IMO, selling people to moving their 401k to a FIA then taking 10% to fund PLI...is one thing, and may be an ok strategy for some of their money. Doing it with most or all of their money, and selling it with the spin that it will do effectively better than the investment account would have, is flirting with disaster. I feel very certain the hammer will follow onto these type of sales.

 

[DHK]

IMO, selling people to moving their 401k to a FIA then taking 10% to fund PLI...is one thing, and may be an ok strategy for some of their money. Doing it with most or all of their money, and selling it with the spin that it will do effectively better than the investment account would have, is flirting with disaster. I feel very certain the hammer will follow onto these type of sales.

I have the documentation on my side. And it's not "spin" at all. One has to know how it's better. It's not about the cash value growth. It's about the tax-exempt cash flow via loans that the policy can provide compared to the net income from a qualified retirement plan.

Of course, if the problem isn't understood... the solution won't matter.

 

[Golfnut2112]

That really is some scary s!!t. You really need to learn the formula of tax equivalent yield? Since WL will probably yield a negative or a zero ROR for the first 10 years and maybe 1or 2 percent for the first 20, to move someone into a WL at retirement for tax free income is nuts. You can factor in social security taxation and all the other tax benefits that you state, and the client is getting screwed. By the way how would have a 60/40 or 70/30 allocation in the market performed over the last 10,20 or 30. It actually is ALL about the cash value growth compared what you can earn elsewhere. Sorry about the rant but screwing with people’s retirement accounts to provide cash flow at retirement from a WL policy that earns nothing for the first 10 year or very little is lack of knowledge on part of the agent. I would love to meet clients that bought into that bullish!t. If you are doing a wealth transfer case that is completely different.

 

[DHK]

This is getting off-topic (again).

You're trying to put me on the defensive. I'm not going to anymore.

I can show how having LESS money in the RIGHT place... is of GREATER benefit to the client.



Oh, and I put my parent's retirement planning into this.

They like it and so do I.

 

[walthamny]

DHK

Now that you are affiliated with an RIA, you can implement the same strategy using Nationwide division for RIA's. Their variable annuity division for RIA has no surrender fees whatsoever on VA's. Fees are $20 a month plus usually 20 to 30 basis points for funds. I charge another 60 bp for my services. Now my compensation is about the same as Athene annuity but I get paid over 10 years instead of upfront. If you assume average stock returns of 8% a year, you make more actually with Nationwide than Athene. Client also makes more. I also think when you move a 401k into a no surrender charge annuity, you kind of tie up California regulators hands. What are they going to complain about. Now I never tie up everything into whole life. If a client has 300K, I would put 200K into stocks and 100K into fixed and use 10K a year in fixed to buy a 10 year WL policy. I understand breakaway group would put the whole 300K into whole life. I have not been sold on that yet.

Your fees being withdrawn from VA at Nationwide do not generate a 1099. They are tax free withdrawals. You can also set up fixed fee withdrawals. Instead of collecting 60 bp like me charge them $ 500 a year for 10 years for each 100K. Clients like this sometimes more. Or charge up front 6K like some fee only planners do.

The problem I always have with the FIA strategy that everyone employing is that you sell an annuity and then the client can not get approved for whole life or gets a bad health rating, they get stuck in the FIA. That is not an optimum solution for many clients. VA would work better and if necessary you can move a portion of VA into FIA if the risk profile and needs justify it.

The agent in the article could have done exactly what I proposed and he would have had no regulatory issues and I think he would have received the same compensation over 10 years. The only way my strategy wont work is for a beginner because I dont depend on selling an annuity upfront to put food on the table. I can wait 10 years to collect if they don't get whole life or my girlfriend Suzie talks them out of the strategy. The beginner can not survive on a 300k rollover collecting 1800 a year in fees.

 

[DHK]

The problem I always have with the FIA strategy that everyone employing is that you sell an annuity and then the client can not get approved for whole life or gets a bad health rating, they get stuck in the FIA. That is not an optimum solution for many clients. VA would work better and if necessary you can move a portion of VA into FIA if the risk profile and needs justify it.

Take a look at NQ SPIAs and dollar cost averaging into the mortality tables each year for 10 years. Only the exclusion ratio is subject to taxation every year. One would need over $5 million in NQ SPIAs before it could begin to affect Social Security taxation. I've seen distribution rates as low as 5.9% after 10 years, and still largely tax exempt.

I'm working on a case with joint work where the client is 69 and after 10 years, the distribution rate is 6.81% after 10 years into NQ SPIAs... and that's if the life insurance doesn't go through.

The problem I have with VAs is that they are still subject to market volatility and income taxes if in a qualified plan/IRA. It won't guarantee the plan.

Regulators don't matter if I can't guarantee that what I want to have happen... will happen.

I'm not using the FIA for indexed returns. I WANT a return, but it's not the primary purpose, nor is the upfront 'bonus', although the FIA I like has one. It's also more friendly for beneficiaries compared to a SPIA with 10-year period certain for a large lump-sum.

I'm using it for a 10-year capital asset distribution strategy - either to WL or NQ SPIAs each year. It guarantees the 10-year capital asset distribution strategy because of the principal guarantees.


Regarding the agent in the article... he was grossly negligent... and that's putting it mildly, based on the details of the rest of the case.

 

[DHK]

If you assume average stock returns of 8% a year, you make more actually with Nationwide than Athene.

See... I can't do that. I can't assume an average each year.

Yet, what's strange, is that part of TBL's talking points for transferring capital into life insurance... is assuming 6% a year. I can't do that either.

Granted, yes, if we put in 2 years worth of premiums, we can APL the rest while waiting for the markets and the account to rebound... and then backfill the loans with the proceeds... but what if we didn't have to in the first place?

So I look at a nearly perfectly guaranteed strategy. The only things that are not guaranteed is the index performance of the FIA or the dividend performance of the WL.

In this way, I'm even more conservative AND earn more money than the traditional TBL strategy.


My advantage in being with an RIA is when the assets are more than $1 million. Yes, we can get approval for a "jumbo case" for the FIA, or we can do a conservative portfolio strategy or other tactical asset management strategy for these larger accounts.

But under $1 million? I'd steer for the FIA.