Ohio National - Demutualization

[scagnt83]

What worries me the most about this whole situation, so many folks were sold these policies for supplemental retirement income (or worse, told to liquidate their retirement accounts and fund WL - so it IS their retirement income now) - and for many it won't happen. I can see potentially alot of lawsuits coming. Yes, the client signed up for it, and Yes, the company screwed them. But a jury won't care because the bad guy is always gonna be the one who made thousands or tens of thousands, (or in some cases) hundreds of thousands by putting this in place. I've never agreed with telling someone to liquidate their 401k and put it into insurance. That idea always through up a huge red flag for me.

Thinking as a lay person not an agent... if someone sold me on that idea, and it blew up... you can bet I'd be seeking retribution. I don't see how it can't happen. More importantly, how about the people that can't 1035? They are literally screwed... and imo, most certainly have a valid reason to sue. They have a pathetic performing WL policy that won't do near what they were told, and now have no actual investments to use for retirement. That's a tough situation for them, and honestly leaves a HUGE black eye on an industry that has often be thought of as slimy to begin with (by many).

Same here. No way there wont be some huge lawsuits coming out of this.... probably class actions suits against "groups" whos only directive was to promote this "strategy".

There is no defending putting someones ENTIRE 401k info WL. Especially funneling it through an annuity just to do so.

The carriers specifically warn against this. I guarantee those apps do not disclose the TRUE source of funds the money is coming from. And by carrier regs and state regs they are supposed to.

Take Penn for example, they restrict "retirement funding" to 10%-25% of the clients income...

So how can an agent take 100% of a 60 year olds retirement account, and use it to fund WL? They must have one hell of a pension and SS benefit coming into them if they are properly disclosing source of funds and the "plan". But we all know what is really happening... they are failing to disclose the true source of funds.

And we should all know from our AML classes, CE classes, and carrier guidelines... that the source of funds is not just the last product the money flowed through.... it is where the agent originally came into contact with those funds.

Then there is the annuity carrier and suitability. They certainly are not telling the annuity carrier the true intention of the annuity transaction. They are not going to approve a client taking 70% of their 401k and putting it into an FIA, just to funnel it into WL.

This is exactly they kind of thing agents get sued over, get licenses suspended, carrier contracts terminated, etc.

While I dont claim to know exactly what TBL is telling agents to do.... assuming they are promoting this scheme of funneling through annuities and hiding the true SOF.... they could be seen by a court of law or regulator as a "co-conspirator" to insurance fraud. Because lets call it what it is, if you lie on the app about SOF, you are committing insurance fraud.

 

[scagnt83]

NYL requires a minimum premium of 20k in the brokerage market. What do you mean by LTD?

That is not entirely accurate. Depends what upline you are using.

 

[scagnt83]

Ha I feel the same way about VUL. I was always trained that VUL had no place, that it was garbage. Now I've considered getting registered again just to sell it.

Check out the newer GVULs out there. The cost of a guaranteed DB to age 121 is less than normal GUL.

Basically they dont have to put as much into reserves for GVUL as GUL. Same with GIUL... its starting to be more competitive than normal GUL because of reserve requirements.

 

[Lloyds of Lubbock]

If this breakaway league has such a high average premium 20k should not be a problem.
LTD? good question! I deleted some stuff and that just ended up there.
Means nothing....good catch!....Have not had my coffee yet

 

[Lloyds of Lubbock]

"That is not entirely accurate. Depends what upline you are using."
If you have a case over 20k you can write NY Life direct with no upline.
In my previous life we put all our apps through the regional rep and never dealt with a GA.

 

[pfg1]

Same here. No way there wont be some huge lawsuits coming out of this.... probably class actions suits against "groups" whos only directive was to promote this "strategy".

There is no defending putting someones ENTIRE 401k info WL. Especially funneling it through an annuity just to do so.

The carriers specifically warn against this. I guarantee those apps do not disclose the TRUE source of funds the money is coming from. And by carrier regs and state regs they are supposed to.

Take Penn for example, they restrict "retirement funding" to 10%-25% of the clients income...

So how can an agent take 100% of a 60 year olds retirement account, and use it to fund WL? They must have one hell of a pension and SS benefit coming into them if they are properly disclosing source of funds and the "plan". But we all know what is really happening... they are failing to disclose the true source of funds.

And we should all know from our AML classes, CE classes, and carrier guidelines... that the source of funds is not just the last product the money flowed through.... it is where the agent originally came into contact with those funds.

Then there is the annuity carrier and suitability. They certainly are not telling the annuity carrier the true intention of the annuity transaction. They are not going to approve a client taking 70% of their 401k and putting it into an FIA, just to funnel it into WL.

This is exactly they kind of thing agents get sued over, get licenses suspended, carrier contracts terminated, etc.

While I dont claim to know exactly what TBL is telling agents to do.... assuming they are promoting this scheme of funneling through annuities and hiding the true SOF.... they could be seen by a court of law or regulator as a "co-conspirator" to insurance fraud. Because lets call it what it is, if you lie on the app about SOF, you are committing insurance fraud.

I can see if someone has piles in their qualified plans and wants to get some off the radar of the IRS, but not most and definitely not all.

Going into annuity, then to WL.. that is a play to maximize commissions. Say client has $1.5MM in 401k, they roll it to an IRA annuity that allows a 10% withdrawal of initial premium amount ($150k/yr). They begin taking those withdrawals to fund the WL at $100k/yr (and use the other $50k to pay tax on the $150k). Rep earns a 5-6% commission on $1.5MM annuity, then a fat commission on a $100k life premium, plus renewals. You don't have to do too many of those a year to eat well.

If rep wanted to use some of the qualified plan $, they should just take out the amount they want each year, and leave the rest to grow with the market.

HOW do they get around the suitability issues? Big producers at some companies get special treatment. They have specific teams assigned to them to handle all their business, get special treatment as to underwriting, and are allowed to stretch the rules and guidelines because they bring in so much premium. ON has had several folks like this over the years that I know of doing just that. They also had one huge producer who committed quite a bit of fraud against clients. They fired the producer, but didn't pursue action against them for fear of more bad publicity (this was during the VA debacle and it was bad enough). *This was told to me by my ON rep, its not hearsay or speculation.

The other potential issue... doing this stuff without a securities license could get ugly. Could constitute investment advice. Of course I know some unlicensed folks give investment advice all the time, others do not.

 

[BNTRS]

Is it just me, or does anyone else agree that "I'm done with you Tyler" should be a trigger phrase to an Insurance Forums Drinking Game? Perhaps I have a tendency to swing by here on awkward occasions.

To the original topic of discussion...

I've now looked at a few "consideration" offers and they all seem to trend somewhat closely to the dividend paid in the prior year.

This said I find ONL's reporting of options to be laughably misleading. The client can--in most cases--choose between a cash payment or paid-up additions (i.e. use the "consideration" to purchase PUA) and the PUA option lists the death benefit created by electing that offer--i.e. it looks like a more substantial benefit than the cash payment.

Cash-wise, the two options are theoretically the same...unless ONL is assessing a PUA load against the PUA option--no clarity on that.

I think most insurable policyholders will be well served to exit soon. Unless they bought the policy for its death benefit with no intentions of using cash and really did intend to pay the premium through the entire premium payment period. And even then I could argue that they likely have better options elsewhere.

Ultimately, this is bad news for the industry as a whole. While other mutual insurers may be nowhere close to considering demutalization, ONL's move will raise some additional hesitancy for some.

 

[scagnt83]

HOW do they get around the suitability issues? Big producers at some companies get special treatment.

They dont have to be big producers. They just lie about Source of Funds on the Life App, and lie about the intent of the purchase on the Annuity app. They use separate carriers so the life carrier cant see the real Source of Funds.

 

[scagnt83]

.
Going into annuity, then to WL.. that is a play to maximize commissions.
....
Rep earns a 5-6% commission on $1.5MM annuity, then a fat commission on a $100k life premium, plus renewals. You don't have to do too many of those a year to eat well.

Especially at the current interest rates for annuities. They would be much better off utilizing the Premium Deposit Account... the client would be guaranteed what the annuity promises.... but the agent doesnt get the extra thousands of dollars the annuity sale makes them.

 

[pfg1]

They dont have to be big producers. They just lie about Source of Funds on the Life App, and lie about the intent of the purchase on the Annuity app. They use separate carriers so the life carrier cant see the real Source of Funds.

Yes, you are right.

So this got me thinking.. maybe the pitstop IS a deliberate move to skirt disclosure. I mean the real source is the qualified plan, but its easy to list the annuity as SOF - since that is where the actual money will be coming from. And the fact that the pitstop pays handsomely, well its a win-win for the agent.
I don't see how ANY jury sides with the agent saying -- "well they knew what they were buying and they signed for it", no matter how much cover your ass documentation they have.

BUT, I've seen top producers get special treatment. I don't know if it goes on at every company, but at ON it definitely (did).