It is all too common: an insurance salesperson who comes to your home after you attend a free seminar or a bank employee recommends that you cash out some or all of your stocks, bonds, or mutual funds and purchase an annuity. In doing so, they have broken the law and may not even be aware of it.
The Act defines an “investment adviser” as anyone who, for compensation engages in the business of advising others about the value of securities or the advisability of investing in, purchasing, or selling securities.
Therefore, when an insurance salesperson or bank employee suggests that you sell some of your investments to buy their annuity, they are technically giving investment advice, and are required to be licensed to provide that advice.
Recommending that you buy the annuity is not illegal under the Act because fixed annuities and indexed annuities are not considered investments. They are insurance contracts. It is the suggestion or advice to sell your stocks or mutual funds that is the illegal act.
To give investment advice, one needs to be licensed as a Registered Investment Advisors. RIA’s have a legal obligation to always recommend what is in the best interest of the client, disclose all relevant details, and avoid conflict of interest. This is the fiduciary standard.
Investment advice can be provided by a non-RIA’s under two exemptions:
- Advice associated with offering investments for sale can be given via a Broker Dealer representative. However, these sales folks currently operate under the “suitability standard” which does not have the same legal safeguards that you have when using a RIA.
- CPAs and attorneys are exempt when providing advice in the normal course of their work and do not hold themselves out as an Investment Advisor.
Please note that an insurance license DOES NOT allow for any advice to by given to buy, sell or hold a stock, bond, mutual fund or ETF under any circumstances.
Unfortunately, seniors are often the victims of this illegal investment advice. The result can be increased income taxes from the sale of highly appreciated investments, being locked into an annuity contract for a long period of time, having to pay a penalty to get all of your money back, or having a contract that fails to live up to the sales pitch.
Getting help when you are a victim of illegal investment advice can be difficult. Some governmental agencies are strapped for resources and never properly investigate a complaint. Police may not understand the significance of the 1940 Act. Many folks do not know where to go for help.
Complaints can be sent to the Securities and Exchange Commission but many times are a matter for a State agency. Another alternative is to talk to an attorney who specializes in senior abuse or security law violations.
If you, a parent, or friend had an insurance salesman recommend that stocks, bonds, or mutual funds be sold to buy their annuity or indexed annuity, there can be legal recourse against the agent and the insurance company. One client that I referred to an attorney, received a $50,000 settlement as a result of an improper annuity sale.
Additional information on avoiding financial abuse with annuity sales may be viewed here.