Before I get started, I want to remind everyone of the ability to download the 2014 EBRI Retirement Confidence Study. It’s 34-page study with a bunch of great statistic on what the American worker is doing to plan for retirement and the fears they have about retirement. To download the study, click on the following link: http://www.pomplanning.net/ebri-study.
LIZA CAPIENDO ET AL VS LARSON FINANCIAL GROUP LLC ET AL
Before I give you the highlights below, I strongly recommend that everyone read the 11-page complaint. Reading it will help you understand how we lawyers think when it comes to suing advisors who sell products inappropriately.
To read the 11-page complaint, click on the following link: www.eiultraining.com/agent-sued-for-vul-sale
Full Disclosure-the moral of the story is that it is vital to give full disclosure when selling products to clients. I preach full disclosure in all of my books (heck my books are full disclosure documents that should be given to clients to help with the full disclosure process). Selling to clients who don’t truly understand the products they are buying is a great way to get sued and that’s what appeared to have happened in this case.
Facts and Allegations from the Complaint
Paul Larson, who is the CEO of Larson Financial Group, LLC (LFG) wanted to get into the physician market. I can appreciate this as the author of the #1 book in the industry to help doctors protect and grow their wealth (The Doctor’s Wealth Preservation Guide).
In 2010 Paul contacted Liza Capiendo who was the president of the Young Physicians Organization (YPO). He wanted to sponsor events for their members and help the YPO raise some money. He agreed to pay the YPO 20% of the initial fee of any new YPO member that signed up with Larson Financial.
In 2011 Paul put on dinners for YPO members where he touted his firm’s expertise in planning and investment for physicians, and handed out sales materials portraying its employees as financial experts who only worked with physicians. In fact, LFG uses the registered trademark: “The Physician’s Specialist® ‘We specialize in helping physicians protect and accumulate assets.'”
Liza and other members became clients of LFG. At Liza’s first meeting on April 8, 2011, Paul Larson and LFG agent, Chris Clark, had Liza write $190,000 and $10,000 checks to TD Ameritrade to set up various accounts, including an IRA, a 401k, and a brokerage account.
Once the accounts were setup, Liza was told to buy life insurance as an “investment.”
Liza and the other Plaintiffs were told that the insurance would be a great “tax shelter,” and that “at some point” there would be no further premium payment. They were not advised of the actual fees and risks associated with maintaining such policies, other than those for LFG services. LFG also told Plaintiffs that that they could borrow against, or pull money out of, the account. That was later discovered as not true.
LFG sold Liza a total of $14,500,000 in life insurance (death benefit).
The Defendant life insurance companies used by LFG were John Hancock and Nationwide.
The allegations are that “Defendants failed to disclose fully, up-front and in plain English, the charges, fees and risks associated with the policies. It was not until the policies were placed in-force and substantial premiums – subject now to massive surrender charges – had been paid, that Defendants disclosed the true charges and fees of the policies.”
The following from the complaint is really interesting: “Defendants John Hancock and Nationwide acted negligently by failing to protect the Plaintiffs from unsuitable and unnecessary life insurance policies with extremely large premiums.”
So the insurance companies were sued for not providing oversight on what were large policy sales. I’ve never seen this type of suit before and the ramifications in the industry, if Plaintiffs are successful, could be far reaching.
As time went by, “the investment of the policies were not as Larson Financial had represented. The policies actually required numerous fees that were previously undisclosed to Plaintiffs, and the premiums were an increasing burden. Plaintiffs could not even surrender their policies as the surrender charges were too high.”
Side note: This is the reason you want to discuss and offer clients high cash value policies. If you are not offering high cash value policies and want to learn about them, simply e-mail me at firstname.lastname@example.org.
Finally, in late 2013, after pouring roughly $300,000 in premiums into her policies, Liza consulted an independent expert who told her to reduce her premiums to the minimum.
Mitigation of damages will be a big issue in this case.
Four Counts-defendants were sued based on the following:
1) Breach of Fiduciary Duty
3) Professional Negligence
4) Unjust Enrichment
My thoughts on this case
Based on the complaint, I’d say the Plaintiffs have a good shot at winning. If the Defendants didn’t disclose the surrender charges properly, if they didn’t offer a policy with a high cash value option, if they didn’t deceive the client as alleged, etc. then it would be much more difficult to prevail.
The claims against the insurance companies are very interesting and I’d think will be difficult to make stick.
Full Disclosure and Client’s Best Interest
This seems to be a classic case of advisors taking advantage of doctors who don’t get into the specifics of what they are buying. If the agents fully disclosed the fees, surrender charges, etc., the client may not have purchased the policies. If they did disclose the fees, etc. then it would be much more difficult to bring such a lawsuit.
Giving advice to people is simple. All you have to do is fully explain the pros and cons of what you are selling and always give advice that is in your client’s best interest. If you do that, you won’t have to worry about these types of lawsuits and you should sleep well knowing that you did the best you can for your clients.
2014 is coming to a close and many advisors are very happy they made the move to come on board with http://www.pomplanning.net.
Why? Because they are now using the best marketing platform in the industry today (http://www.pomplanning.net/ummp). Over the last two years alone, advisors I’ve recommended to POM Planning have gathered over $350 million in AUM.
If you want to start your 2015 off on the right foot, I strongly recommend you get to training. There is only one training left this year. To learn more, go to http://www.pomplanning.net/training.
Roccy DeFrancesco, JD, CWPP™, CAPP™, CMP™
Founder, The Wealth Preservation Institute
144 Grand Blvd
Author of: The Doctor’s Wealth Preservation Guide; The Home Equity Management Guidebook; The Home Equity Acceleration Plan; Retiring Without Risk; Bad Advisors: How to Identify Them; How to Avoid Them; and Peace of Mind Planning: Losing Money is No Longer an Option
The Wealth Preservation Institute | 144 Grand Blvd | Beton Harbor | MI | 49022