State insurance regulators are focusing their efforts on a short
list of five consumer problems areas related to the improper
sale of variable annuities and life insurance. The problem areas
include: 1) 1035 exchanges, 2) variable annuities inside of
qualified accounts, 401(k)s or IRAs, 3) failure to fully
disclose costs and fees, 4) comparing sub-accounts to mutual
funds, and 5) improper or unrealistic product illustrations.
While the actual extent of problems in these areas is not known,
some industry observers believe that one or more regulations was
violated in the sale of the majority of variable annuities and
variable life insurance polices. The vast majority of sales
practice violations are not reported to the regulators because
the investor is not even aware that a violation has occurred.
Financial damage, if visible at all, is often not apparent until
many years later.
If you believe that you have been the victim of sales misconduct
when buying a variable annuity or variable life insurance
policy, then you basically have two options: report the incident
to the regulators in your state or consult a private adviser.
Both are long and tedious processes, but only the second option
is likely to result in a financial recovery if you have suffered
a loss from an improper sales practice. An apparent third option
– reporting the problem to personnel in your investment company
– is unlikely to result in any substantive corrective action
because the automatic “denial of wrongdoing” mentality is deeply
imbedded in the financial services industry. Investment
representatives are routinely restricted from admitting
wrongdoing or negotiating solutions with customers. These issues
must be referred to the firm’s legal department where the
individual is unlikely to make any progress without legal
representation anyway. So this third option really is not really
a separate strategy after all.
It might be smart to get an early opinion of an independent
financial adviser and attorney in any case. Attorneys who handle
these legal issues typically work in tandem with a financial
adviser to identify, document and then redress problem areas.
Some of these problem issues are addressed as class action
claims, where others are handled on an individual case-by-case
basis. It is usually necessary to demonstrate a realized
financial loss or damage in order to successfully negotiate a
financial settlement.
About the author:
Tony Novak is an independent writer and financial adviser in
Narberth PA who who has consulted as an expert witness in sales
practice disputes.
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