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Allianz and American Equity Class Action Lawsuits

Allianz and American Equity Class Action Lawsuits Finally Surface with 100,000’s of Plaintiffs

             Before I get started I wanted to make everyone aware of last week’s newsletter on the Safe College Plan™ (  It was the most well-received newsletter I’ve had in several years and there have already been over 500 advisors who signed up for the webinar.  If you want to learn about the only plan in the marketplace to fund for college education using FIAs where the money can grow tax-free, be removed tax-free and avoid the 10% penalty for removing money prior to age 59.5, then you should click on the following link to listen to the recorded webinar:

                       It’s interesting to see how our industry works when it comes to full disclosure on certain issues.  I strongly advocate not only giving full disclosure when selling products, but also documenting your full disclosure discussions with clients in a follow up letter that you can keep in your file (this is a terrific CYA move).

                       It seems that most companies think it’s not in their best interest to give full disclosure on many issues.  Just to name one glaring area of the industry where lack of disclosure runs rampant would be the renewal rates on Fixed Indexed Annuities (FIAs).  Why is that?  My belief is because many companies dump caps after issuing products with caps they know they cannot finically sustain.  If a company published a history of dumping caps, would that affect the number of insurance agents that sold the product? Absolutely

                           Class Action Lawsuits

                       If you knew that an insurance company had one or more class action lawsuits filed against it (especially for deceptive sales practices) would that give many advisors reason not to sell their products?   ABSOLULTELY.

                       Then let’s move onto the Allianz Life Insurance Company of North America (Allianz) and American Equity Investment Life Insurance Company, Estate Planning & Investment, Inc. lawsuits (American Equity). 

                       The question is: did you know that these companies had a class action lawsuit filed against them?

                       For most readers the answer is that you did not know that either company is in the midst of fighting a class action lawsuit.   Why?  Good question.  If I was a licensed agent with an insurance company I would want to know if they had a class action lawsuit filed against it.

                           Why are these companies being sued?

                       Not surprisingly, Allianz is being sued for deceptively marketing its classic big bonus non-walk away FIA. The attorney suing Allianz indicated that there are already over 350,000 class members who have joined the suit.  American Equity is being sued for also selling bonus FIAs and not disclosing to clients that in order to recoup the costs of these bonuses and the high commissions paid to agents, that their product would return lower yields. 

See the language from the Allianz lawsuit:

           Allianz “deceptively and fraudulently marketed its “upfront” premium bonus to individuals for the purpose of enticing them to purchase Allianz’s two-tiered equity-index annuities.  As a result, Allianz reaped hundreds of millions of dollars in increased revenues, while Plaintiffs and Class members were locked into a product with indefinite surrender penalty periods and an annuitization requirement that Allianz knew or should have known will not likely ever occur.” (emphasis added)

                       To read the actual lawsuits (which I strongly recommend), please click on the following link:

                       What’s a two-tiered non-walk away annuity?  It’s typically one where a client is given a large up-front bonus when they pay the initial premium (Allianz seems to like one with a 10% bonus.  Therefore, a $100,000 premium payment yields a $110,000 account balance which looks great on paper for the client).  Why is it a non-walk away?  Because the client cannot “surrender” the annuity even after the typically long surrender period for cash and have it include that large bonus (and the growth in the product).  Typically the client must “annuitize” the annuity at a rate that is yet to be determined (and in my opinion will be pathetically low so the company can make sure they made a profit on the annuity).  (Good thing NBC’s dateline producers didn’t have information on this lawsuit before running that hatchet job story on FIAs).

                       How do you sell/market this product in a non-full disclosure manner or even a deceptive manner? 

                       It’s pretty simple, do not disclose to the client that the account value is not a “walk away” amount and at no time during the life of the annuity does the client have access in full to the account value that has been inflated because of the big bonus.

                           No Fees

                       The American Equity lawsuit also focused on part of the sales pitch by agents it called deceptive when insurance agents had a pattern of telling clients that the product has “no fees” (which was coupled with a lack of full disclosure on surrender penalties).

                           Why are we just finding out about these lawsuits now?

                       The Allianz lawsuit was filed on March 15, 2006 and the American Equity lawsuit was filed on September 12, 2007.   A notice going out to insurance agents for the Allianz suit came out on November 25, 2008 and an American Equity Notice went out on December 2, 2008.

                       I can’t speak for the insurance companies, but if you read the notices, it appears that since the classes were recently “certified,” a letter will be going out to a “large number” of Allianz and American Equity policy holders letting them know about the suits. 

                       That should be interesting and I imagine that if you sold a non-walk away annuity at Allianz and American Equity, the chances of one of your clients getting such a letter is good.  The insurance company’s notice to agents is interesting; look what the attorneys suggest (good advice):

                           -You should not comment on the merits of the lawsuit.

                           -You should not advise the client as to whether they should (or should not) exclude themselves or opt out of the lawsuit.

                           How will or should these lawsuits affect insurance agents?

                       It depends.  If you sold a big up-front bonus product at Allianz or American Equity, the chances of your clients calling you to wonder what’s going on is significant.   I hope you sold the non-walk away annuity with full disclosure and kept a copy of your follow up letter to your clients emphasizing the non-walk away aspect of the product.

                       In general what these lawsuits should tell us is that there are many in this industry who do not give client-first advice and instead simply want to push product to make big commissions by pushing what are easy to sell products when you do not give full disclosure.

                       I also think that because of the success of these lawsuits, other companies with similar products will follow.  That’s not good for our industry especially at a time when FINRA is trying to regulate everything under the sun including FIAs.

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Roccy DeFrancesco, J.D., CWPP™, CAPP™, or MMB™
Founder, The Wealth Preservation Institute
Co-Founder, The Asset Protection Society

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