Decades ago, Wall Street sold its soul when it embraced the so-called "financial superstore" model and integrated banking, mortgages, insurance, stocks, bonds, options, annuities, and futures under one leaky umbrella. The theory was that cross-selling would move the the old-fashioned brokerage firm onto a glitzy platform from which customers would be up-sold into a wide array of new and different financial products. In reality, that platform turned out to be little more than a plank from which many customers were prodded into walking to the end and then plummeting into the murky waters of financial ruin. Rather than protect consumers, Wall Street's regulators took on the role of cheerleaders and, at times, rigged the regulatory system so that it favored financial superstores over more local, smaller brokerage firms. The wise voices urging caution were marginalized as out-of-touch old-timers. Financial superstores may have taken control of Wall Street's Jurassic Park but they are little more than re-animated fossils of a bygone era. In the end, these financial dinosaurs cannot sustain themselves in the modern world.
Few financial products are more symbolic of the excesses of Wall Street's urge to merge into bigger and bigger and bigger firms than annuities, particularly variable annuities or, as they're known in the trade, VAs. In a rush to boost profits and offer something more than a stock recommendation, even small brokerages have jumped on the VA bandwagon. All of which has produced an environment in which big and small firms are pushing their sales-force to use the hard-sell or the up-sell with VAs. Over time it often dawns upon customers that they may own something that's far more expensive and far less profitable than what they sought they were sold. Which is not to say that VAs may be a suitable investment for some folks but it is to say that you need to read the fine print, ask lots of questions, do your due diligence, and then, frankly, generally say "thanks but no thanks." Even FINRA has a helpful "Investor Alert": Variable Annuities: Beyond the Hard Sell
https://www.finra.org/sites/default/files/InvestorDocument/p125846.pdf , which warns in its preamble:
The marketing efforts used by some variable annuity sellers deserve scrutiny -- especially when seniors are the targeted investors. Sales pitches for these products might attempt to scare or confuse investors. One scare tactic used with seniors is to claim that a variable annuity will protect them from lawsuits or seizures of their assets. Many such claims are not based on facts, but nevertheless help land a sale. While variable annuities can be appropriate as an investment under the right circumstances, as an investor, you should be aware of their restrictive features, understand that substantial taxes and charges may apply if you withdraw your money early, and guard against fear-inducing sales tactics.
In a recent FINRA Arbitration case, we see yet another round of unhappy customers with what they came to see as crapola VAs -- and yet another stockbroker who sincerely felt that he was victimized by buyer's remorse and the failure of the industry to get his back.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in December 2017, Claimant Harris sought an expungement of customer complaints (referenced as Occurrences #1356255 and #1483278) from his Central Registration Depository records ("CRD") and $1 in compensatory damages. In the Matter of the FINRA Arbitration Between Eric Todd Harris, Claimant, vs. MSI Financial Services, Inc, Respondent (FINRA Arbitration 17-03288, June 13, 2018)
Respondent MSI Financial requested that the $1 in damages be denied but otherwise took no position on Claimant's expungement request. Respondent MSI did not appear at the evidentiary hearing.
The FINRA Arbitration Decision asserts:
The customers and Respondent did not participate in the expungement hearing and did not contest the request for expungement. The customer for occurrence #1483278 sent an email message on May 25, 2018 opposing expungement.
In recommending the expungement of all references to Occurrences #1356255 and #1483278, the sole FINRA Arbitrator found the claim, allegation, or information was false. The Arbitrator offered the following rationale:
The complaint from the customer is not credible. Her claim that she was unemployed and not married at the time Claimant sold her a variable annuity in December 2006 is belied by the fact that she signed the application on December 7, 2006 designating her "husband" as the 100% primary beneficiary and saying that her annual income was $55,000.00 as a spin instructor. Claimant testified credibly as to why the annuity was suitable for her at the time of purchase, and she did not return the contract during the "free look" period.
The customer complaint stating that she had not known in 2007 that she was buying an annuity is not believable. Documentation given to her before and at the time of purchase clearly stated that it was a variable "annuity", and Claimant testified that he orally discussed the "annuity" and its characteristics and options with her. She had a
15 year history of mutual fund investment, chose the Moderate Allocation Portfolio, did not return the contract during the "free look" period, and did not complain until after suffering losses in 2008 - 2009. Her May 25, 2018 email message disputing expungement and accusing Claimant of lying reflects her inaccurate reading of his CRD and/or BrokerCheck Report.
Bill Singer's Comment
A concise FINRA Arbitration Decision in which the Arbitrator provides us with content and context to understand the nature of the underlying customer complaints and the basis upon which expungement was recommended. As is demonstrated in the Decision, if a customer asserts that she is unmarried and unemployed but it turns out that she is married and employed, that's not going to enhance that individual's credibility. Similarly, if a customer's complaint comes off as more buyer's remorse than the byproduct of fraud, an independent Arbitrator may well pooh-pooh assertions that what was sold as an annuity was not knowingly purchased as same by the wannabe victim.
If I have one quibble, it's with the assertion that the customers "did not contest the request for expungement." I'm having a bit of a problem reconciling that with the somewhat contradictory assertion in the Decision that the "customer for occurrence #1483278 sent an email message on May 25, 2018 opposing expungement." If there is a difference between contesting and opposing an expungement, it's lost on me.