FINRA Finds Variable Annuities, Life Insurance Liquidation Strategy Unsuitable, Cites ON Equity Sales Broker

Attorney Advising Disclaimer

Citing the case of an O.N. Equity Sales Company broker who unsuitably recommended that at least 78 clients liquidate their retirement savings in order to purchase variable annuities, only to then make substantial withdrawals in order to purchase whole life insurance policies, FINRA barred the rogue representative, sending a message throughout that industry warning of this risky and costly strategy.

In its investigation, FINRA wrote of the broker's unsuitable recommendations to 78 customers to use proceeds from their retirement savings' liquidations to purchase variable annuities that were inconsistent with the customers' investment profiles, time horizons, liquidity needs, and risk tolerance preferences.

Investigators found that even though stockbroker knew that variable annuities are intended to be long-term investments, he nonetheless unsuitably recommended his customers follow an investment strategy called "infinite banking" wherein the clients would make short-term withdrawals from the newly-purchased variable annuities, resulting in commissions and fees.

The broker then purportedly recommended his customers to use the proceeds from these second sets of liquidations in order to purchase whole life insurance policies.

In all, through his unsuitable recommendations to liquidate existing retirement accounts (such as a portfolio of mutual funds) to purchase variable annuities, only to turn around and liquidate those variable annuities to acquire life insurance policies, ONESCO's broker earned $686,025 in commissions, not to mention the early withdrawal penalties and tax consequences his customers encountered for liquidating/breaking IRA and 401(k) accounts.

Thus, FINRA's bar serves not just as an admonishment of one broker at ON Equity Sales Company, but an industry-wide warning of an investment scheme marketed as an "infinite banking" investment strategy. Specifically, FINRA's investigation warns investors that building your own bank through liquidation of existing long-term retirement accounts or other portfolio features can be costly and dangerous due to surrender fees, withdrawal sales charges, and commissions, not to mention losses in the VA products themselves.

Finally, FINRA cited the broker for violating industry signature rules by allowing customers to sign blank or partially completed documents; he had previously had been terminated from a firm for allowing a customer to sign a blank form.

If you have invested with a broker or financial adviser who unsuitably recommended you liquidate an existing long-term investment securities product in order to purchase a variable annuity, only to liquidate that product as well to purchase yet another security or insurance product, and these excessive transactions have proven harmful to your investments or interests, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.
Related Posts
  • Stephen Takeda Barred During Customer Loans Investigation Read More
  • Jilena Mok of Edward Jones Sanctioned for Unauthorized Discretionary Trades Read More
  • Credit Suisse Ends 9 ETNs, Including Delisted VelocityShares Products That Lost 90% of Value Read More