Minn Life, Shurwest, and Others Sued in Bad IUL Sales Structure
IF YOU KNOW A CLIENT OR FRIEND WHO GOT CAUGHT UP IN THIS STRUCTURE,
PLEASE EMAIL ME IMMEDIATELY TO SET UP A CALL.
The IUL sales structure I will talk about in this newsletter I saw a few years ago. I was asked by an IMO owner to review the structure and give my opinion.
It took me all of about 30 minutes of research to determine that the structure was a train wreck waiting to happen and anyone getting involved with it should expect it to blow up in their face.
To read the complaints filed against Minnesota Life, Shurwest, and several other defendants, and to read a separate CLASS ACTION complaint against Minnesota Life, click on the following link:
One question I get quite often from advisors who have been getting my newsletters is: what exactly do you do?
The short answer is that I ….
1) Educate, mentor, and help advisors give better advice to clients (CALM)
2) I help them market (www.strategicmp.net for list of marketing tools)
3) I have a software company (OnPointe which had the best investment risk software in the industry (www.onpointeriskanalyzer.com))
But for thousands of advisors, what I do is keep them out of trouble by reviewing products and sales concepts. What you will read in this newsletter is a classic example of me helping an IMO and ultimately hundreds of agents from getting caught up in the lawsuits that are now flying.
Structured payment streams and IULs do NOT mix!
Let me explain how this IUL (Indexed Universal Life) sales structure worked.
First you have to assume potential clients have a pot of money that could be used to fund an IUL policy for the sole purpose of borrowing from it tax-free in retirement. So the sales were mainly to older clients and some who used money from IRAs (this alone is a problem since older people should not be buying life insurance as a retirement tool and you should NEVER take money out of an IRA or qualified plan to fund an IUL for tax-free borrowing (it’s a mathematical loser)).
So, assuming clients with money pay premiums into an IUL, the question is what to do with that money as you wait to fund the IUL over a 5-, 7-, 10-year period.
Is it better to let the money sit safely in a savings account? Or put it in CDs that mature simultaneously to pay the IUL premiums? Should you use a premium deposit account at an insurance company?
Well, the agents who got caught up in what appears to be a scam, said no, no, no, no.
Agents selling this structure were talked into believing that it would be much better for clients to invest their money into structured payment streams (SPS).
What is an SPS? The easiest example of an SPS is when someone receives a guaranteed payout from an annuity for X amount of years. Someone who is receiving annuity payments can choose to sell those payments to an investor for a lump sum. The buyer buys the payments at a discount and then receives them going forward.
In the IUL sales structure I’m covering in this newsletter, the payment streams were coming from Federal employees (from their pension payments).
On its face, it sort of sounds logical. The employee who is receiving $750 a month for the next several years could sell that payment stream for a lump sum. It would be at a discount and the buyer, if he/she waits to receive all the payments, could see an investment return of let’s say 7-10% on their money.
This is an IUL sales person’s dream. You show the client how to take the money that they need to “keep safe” for their future IUL premiums and show them how to get a 7-10% investment return on it (vs. earning nothing or very little if kept in a savings account). It’s a win-win. With the structure payments, you are actually increasing the premium that goes into the IUL!
And the insurance agent can make a commission on the sale of the structured payment and the target premium on the IUL is larger (winner winner chicken dinner)!
Class Action and Other Lawsuits
What’s the problem with this awesome sales concept? What has happened is exactly what I predicted would happen when I saw the structure nearly two years ago.
The structured payment company that was responsible for investing the money of clients and generating the payment streams needed to fund all the IUL policies is NO LONGER PAYING! They apparently don’t have the money! How can that be?
First let me say that a 6th grader doing a few minute’s worth of research on the internet should have come to the conclusion that the person behind this structured payment company was someone who you would NOT want to do business with.
Besides the questionable history of the person behind the structure, the structure itself has such glaring flaws to it that you’d have to be an idiot to recommend this to clients. It is my belief after working with insurance agents for two decades that I’m sure most didn’t do any real research and just knew they could sell a lot of IULs and make extra money selling the structured payments as well.
Why was it so clear to me that this structure was dangerous? It was built on faith.
I asked simple questions like is there a bank or trust company (reputable one) that is managing the payments in this structure? Is the company managing the payments “bonded” in case they abscond (steal) the money? Are the payment streams from the federal employees direct deposited into a trust or dedicated account that will then be used to make payments to the investor?
The answer to all of these very simple questions was NO!
No. A reputable trust company isn’t being used. No. The structured settlement company isn’t bonded. No. We have to rely on the employees to received their paychecks and then turn around and give it to the trust company.
Are you kidding me? What part of this structure looks like it is one that will protect our client’s investments?
It’s truly amazing that Minnesota Life and one of the bigger IMOs in the industry fell for this plan. I’m guessing that the lawsuits I got my hands on are only three of many.
I hear through the grapevine that one of the largest IMOs in the industry when it comes to selling IULs (a different one than Shurwest) is in deep on this as well.
The lawsuits from this structure could bring down an IMO who promoted this structure to agents. Minnesota Life is too big to bring down over this, but the damages from these lawsuits will be significant if liability is proved.
Why do advisors hang out with me?
Remember, I wrote the book Bad Advisors: How to Identify Them; How to Avoid Them. In that book I have a chapter on IMOs. I do NOT like or trust most IMOs. This awful IUL sales story proves my point. Oh, if you want to download for FREE my Bad Advisors book (I highly recommend it), click on the following link:
This newsletter sums up the reason for my existence in an all too often seedy industry. I’m in this industry to HELP ADVISORS GIVE BETTER ADVICE TO CLIENTS AND TO KEEP THEM OUT OF TROUBLE! Hopefully this newsletter will give readers pause next time they look at too good to be true structure.
Roccy DeFrancesco, JD