Insurance Agent Sued by the State of MA over Free Lunch Seminars

To download the 19-page complaint the State of Massachusetts filed against the insurance agent who was sued over inappropriate sales of Fixed Indexed Annuities (FIAs), click on the following link (I had to put in a freedom of information act request to get it, and it should be mandatory reading for everyone):

This should be the scariest newsletter insurance agents will read in several years. Any insurance agent who is NOT 65 licensed and reads this newsletter should immediately watch the RECORDED WEBINAR we did on why EVERY advisor should have a 65 securities license.  To watch the webinar, click on the following link:

What’s wrong with lunch or dinner seminars? Postcard mailers to drive prospects to lunch or dinner seminars are a staple in our industry. The agent who is being sued by the State of MA got many of his clients from these same types of dinner seminars.

Why is the State of MA suing an insurance agent over lunch seminars?

For giving investment advice without a securities license. The issue at hand is a HUGE catch 22 for insurance agents selling FIAs and IUL.

Question: Can an agent explain the benefits of an FIA and recommend clients to buy them?
Answer: Yes.

Question: Where does the money come from most of the time to fund an FIA?
Answer: Mostly liquidated stocks, mutual funds, and bonds.

Question: Can an agent recommend that a client sell their stocks to fund FIAs?
Answer: No!

Question: Then how does the client know what funds to use to buy the FIA?
Answer: Good question (most agents tells the client what funds to use which is a problem)

The pattern and practice of the agent being sued

                1) Agent does seminar.
                2) Agent meets with client.
                3) Agent recommends the purchase of an annuity.
                4) Annuity is purchased with money that came from the sale of securities.

Is there anything wrong with the above fact pattern? It happens thousands of times a year with insurance agents and their clients.

In the Massachusetts complaint, there are 14 examples of different fact patterns and many used money that came from 401k plans to fund the FIAs. In some instances, the complaint alleges that the agent told the client to sell securities to fund the FIA and in others it just states that’s what the client ended up doing.

Source of Funds (SOF) Rule—the Massachusetts complaint all revolves around the SOF Rule.

Back in 2015, I did a warning newsletter titled: States are Forcing Insurance Agents to Become Securities Licensed.  In that newsletter, I alluded to three states that had notices or bulletins putting insurance agents on notice that it is a violation of their state securities laws to recommend moving money from a security to fund a fixed insurance product.  One state subjects advisors to a fine up to $20,000 per violation.

To read my past newsletter or to download the actual bulletins from the three states, click on the following link:

The State of MA has taken it up a notch

What is troubling about the Massachusetts complaint is that it seems to allude to the fact that the only way for an insurance agent to avoid being subject to their SOF rule is to fund FIAs and IULs out of savings or cash flow. That’s a problem since most FIAs are funded from clients liquidating stocks/mutual funds.

What should insurance agents do? My last warning prompted hundreds of insurance agents to get a 65 license. From this newsletter warning about what the State of MA is doing, hopefully it will drive hundreds more to get their 65 license.

Having a 65 license will protect insurance agents from regulations, it will help them provide more comprehensive advice, and it will help them grow a reoccurring revenue stream.

To me, the question isn’t whether insurance agents should get a 65 (I’ve been preaching that for nearly 8 years now), the question is what RIA (Registered Investment Advisor) are you going to affiliate with?

Roccy’s Favorite RIAs

Through my recommendations to various RIAs, advisors have brought in over 1 billion dollars in AUM.  To do this, you need a unique platform that is not “buy and hold” or the “Modern Portfolio Theory”.

I work with a few RIAs who specialize in low drawdown risk strategies. Some are purely tactical and some are what I call strategic. Some are passive strategies with a tactical overlay. But the RIAs I work with specialize in working with any advisor who also likes to use FIAs and IULs.

To learn about the RIA I recommend, click on the following link:

Roccy DeFrancesco, J.D.
Strategic Marketing Partners, LLC