Category Archives: Variable Annuities

Once known as a financial broker to the rich and famous, Bambi Holzer has now been barred from the securities industry by the Financial Industry Regulatory Authority (FINRA). Holzer agreed to the settlement with FINRA last week.

Holzer’s problems seemingly began at the onset of her career in the financial business. As reported in a 2009 article by Forbes, Holzer started working in the 1980s as a receptionist for Oppenheimer & Co. She was promoted within a few weeks to assist the firm’s muni bond trading desk. Shortly thereafter, Holzer moved to Shearson Lehman Hutton, where she was accused of fraud, negligence and churning a client account. According to the Forbes article, Holzer’s employer paid $70,000 to resolve those allegations.

Regulatory records show that Holzer returned to Oppenheimer in 1989 and was “permitted to resign” the following year. Over the years, Holzer worked for at least 10 different broker/dealers, including Brookstreet Securities, A.G. Edwards, Bear Stearns, Newport Coast Securities and UBS.

Despite her problems with regulators – as well as a growing list of investor complaints and disciplinary actions – Holzer somehow managed to maintain an image of wealth and success. With a Beverly Hills office located just off of Rodeo Drive, Holzer counted several celebrities among her clients, including former “Seinfeld” star Julia Louis-Dreyfus. In addition to dispensing financial advice, Holzer authored several books and made numerous television appearances.

Eventually, however, Holzer’s sketchy regulatory history caught up with her. In 2007, former client and actress Julia Louis-Dreyfus, as well as other investors, sued Holzer and one of her former employers over a dispute involving $4.4 million invested in annuities. That suit was later settled.

According to the Investment News article, Holzer and her firm at the time, UBS PaineWebber, paid out at least $11.4 million to settle dozens of investor claims that she misrepresented variable annuities by saying that they offered guaranteed returns.

In September 2013, Holzer was suspended by FINRA since September; at the time, her BrokerCheck report contained 115 pages of investor complaints.

One month later, Holzer was sued by FINRA for allegedly lying to one of her former broker/dealers, Wedbush Morgan Securities Inc., about several clients’ net worth when she sold preferred shares of one of the deals issued by Provident Royalties. In July 2009, Provident Royalties was sued by the Securities and Exchange Commission (SEC) for fraud and what later turned out to be a $485 million Ponzi scheme.

After clients saw $18 million in financial losses tied to variable annuities with subaccounts invested in hedge funds, the Financial Industry Regulatory Authority (FINRA) wants answers from the broker/dealers behind the sales.

As reported Dec. 5 by Investment News, the variable annuity was issued by Sun Life Financial Inc., while the two hedge funds were the Foresee Strategies Insurance Fund and the Foresee Strategies 3(c)(1) Insurance Fund LP. Both funds were related to a group called the SALI Multi-Series Fund LP.

The broker/dealers facing FINRA arbitration complaints from investors regarding the Sun Life annuities include: Geneos Wealth Management Inc., Lincoln Financial Network, National Planning Corp., SagePoint Financial Inc. and FSC Securities Corp.

Another broker/dealer that sold the product reportedly has been shut down.

Last week, a FINRA arbitration panel issued a $284,000 award to a SagePoint client, Phillip Sherrill, who filed a claim against the firm one year ago. In his complaint, Sherrill alleged actions of unsuitability, common law fraud, breach of fiduciary duty and negligence related to investments in the SALI Multi-Series Fund and the SALI Multi-Series Fund 3(c) (1) LP.

Several well-known life insurance carriers are making a surprise exit from the variable annuities business, while others are drastically scaling back their exposure or evaluating their participation in 2012.

The combination of a volatile stock market and a prolonged low-interest-rate environment has made it both difficult and expensive for life insurers to hedge variable annuities with living benefits, according to a Dec. 18 article by Investment News. As a result, many insurers are opting to limit their exposure to those hedging costs by exiting, or scaling back, their VA business, the article says.

In 2011, two big VA players – Genworth Financial and Sun Life Financial – announced that they would be leaving the variable annuities market. Others like Jackson National Life Insurance Co., MetLife Inc. and Prudential Financial are making plans to eliminate living benefits and limit investment options.

In addition, John Hancock Life Insurance Co. announced in November that it planned to withdraw an array of annuity products, including variable annuities, as well as limit distribution of existing products to only a small number of broker/dealers.

A variable annuity is a contract between you and an insurance company whereby the insurer agrees to make periodic payments to you beginning either immediately or at some future date. In return, you agree to purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments.

In general, variable annuities are designed to be long-term investments to meet retirement and other long-range goals. They are not suitable for meeting short-term goals because substantial taxes and insurance company charges if money is withdrawn early. Variable annuities also involve certain investment risks.

Increasingly, variable annuities have become the focus of a growing number of legal disputes and investor complaints. Earlier this year, an arbitration panel of the Financial Industry Regulatory Authority (FINRA) awarded a Texas man and the estate of his deceased wife $1.7 million, after finding that an independent contractor, Paul Davis of Raymond James Financial Services, sold life insurance and variable annuity products that were inappropriate investments given the couple’s age and risk tolerance.

According to FINRA’s ruling, Davis sold the couple’s $3.8 million portfolio (which had been heavily invested in municipal bonds) in favor of life insurance and annuity products. He then invested in one annuity after another from 2002-2006, causing the Texas couple substantial financial penalties.

Two Nebraska investors have filed a class-action lawsuit against LPL Financial, alleging that one of the company’s brokers – Bob Bennie – misrepresented the costs and benefits of variable annuities.

As reported in a June 17 article by the Associated Press, more than $365,000 of the products had been sold to investors Richard and Carol Ripley. The Ripley’s lawsuit, which was originally filed last month in a Nebraska state court and which seeks class-action status, has been transferred to a Nebraska federal court.

In their lawsuit, the Ripleys contend that Bennie failed to disclose the unsuitable nature of the annuities and misled them about withdrawing money without facing a penalty and the costs of the annuities.

Boston-based LPL provides trading and support services to 16,000 independent brokers. Bennie is the owner of Bob Bennie Wealth Management.

Variable annuities have faced growing scrutiny lately, with regulators initiating enforcement actions against annuity sellers for unsuitable sales and lack of disclosure.

In the simplest terms, a variable annuity is a tax-deferred investment that comes with an insurance contract in which earnings grow tax-deferred.

At the same time, variable annuities come with a high commission fee – up to 9% in some instances. Moreover, many investors are often unaware of the early withdrawal penalties associated with variable annuities.

Five broker/dealers, all dealing in variable annuities, mutual funds and other types of securities, are facing fines of $1.7 million by the Financial Industry Regulatory Authority (FINRA) for failing to properly supervise sales to customers, many of whom were elderly and retirees. 

The five firms, along with their respective fines, include:

• McDonald Investments (now KeyBanc Capital Markets, Inc.) – $425,000
• IFMG Securities – $450,000
• Wells Fargo Investments, LLC – $275,000
• PNC Investments – $250,000
• WM Financial Services, Inc. (now Chase Investment Services Corp.) – $250,000

According to FINRA, brokers at each of the firms operated out of branches of affiliated banks, selling the investments to bank customers. The brokerage customers were referred by bank personnel, and sales of these financial products represented a significant portion of each firm’s business.

 “Today’s actions underscore the need for firms operating bank branches to have effective systems and procedures in place to monitor sales of variable annuities, mutual funds, and UITs,” said Susan Merrill, FINRA Executive Vice President and Chief of Enforcement, in a press statement. 

“Bank broker-dealers have access to a broad customer base through their retail bank branches. Proper care must be taken to appropriately supervise sales to those customers, particularly the elderly who can be unfamiliar with securities products as they seek alternatives to certificates of deposit and other bank offerings.”

McDonald Investments also was charged with selling variable annuities with enhanced death benefit riders to 25 customers aged 78 or older. The customers were either too old to be eligible for the rider or very close to the ineligible age and would have received little or no benefit from the rider despite paying higher fees for it over the life of the annuity. 

The customers will be given the opportunity to get their money back plus interest, according to FINRA.