Rebate Issue on an Annuity

BrokenIllinois

New Member
8
Hi all.

I'm a newbie so hopefully this is the right forum.

I placed my trust in an agent to purchase an annuity in IL that really does not suit my needs or what was presented. I do not think she knew the product well and used the old "safe 6%-7% return" sales pitch. Hey, my fault for trusting too much and not reading through the huge contract. I get it. The industry has a bad rep.

However, when I got cold feet, she gave me a rebate (in excess of $100) to not invest elsewhere. Clearly illegal and rebating especially since the suitability on this product was way off.

I did not know it was a kickback until I spoke to other agents. After all, banks give me money to open checking accounts. She did tell me to keep it between us.

Obviously, I want out of this product since it was sold under false pretenses. However, I don't want to affect someone's ability to make a living.

Questions:

1. What penalties can occur for her?
2. Can I get in trouble for accepting it although I thought it was common practice?
3. Does relationship matter at all since there is a family connection?
4. What is my likelihood of getting out of this with my initial premium (forget the foregone gains) without mention of the rebate?
 
Questions:

1. What penalties can occur for her?
2. Can I get in trouble for accepting it although I thought it was common practice?
3. Does relationship matter at all since there is a family connection?
4. What is my likelihood of getting out of this with my initial premium (forget the foregone gains) without mention of the rebate?


1. If reported to the DOI, her license would most likely be suspended for a period of time. If I had to guess, I would say anywhere from 3mo to 1yr.

If reported to the Insurer, she will most likely never be able to do business with that carrier again (or at least for a certain number of years). The Carrier might also report the Agent to the DOI depending on the circumstances.

If the Contract is Rescinded, the Agent will then owe her Commission back to the insurance carrier (comp is in the 4%-7% range on most products)


2. You would not be in trouble because you were not aware it was illegal. Technically they might could go after you, but they wont. Only if you knew it was illegal (or you initiated it) would they go after you.


3. Relationship does not matter. Only relationship that matters here is the Agent / Client relationship.


4. You have a chance of it. How long has it been since you took out the contract?

Most states give you a 30day "free look" where you are able to cancel the contract free of charge and receive 100% of your Premium back. Some states give you 60... but if I remember right, its 30 days in IL.

So if still within that time frame, you can still get your original Premium back with a single phone call to the insurance company.

If you are outside of that time frame, it is more complicated and not guaranteed to happen. However, you probably have a decent chance of it.... especially if she offered the Rebate within that 30day Free-Look Period.

I would probably start with the legal department of the insurance company. Write a Certified Letter explaining what happened and stating your wishes for them to Rescind the Contract. I would also (in a polite way) explain that if they dont, you will file a complaint with the state DOI. Start there and see what happens.

Or... depending on the family relationship and situation.... you could let the agent go to the carrier and tell them what happened and what you wish/plan to do.... it would be the best thing for the agent if that was able to happen. The carrier would probably be less likely to report them to the DOI if that happens.
 
Ignorance of the product and selling something that doesn't work for the client is certainly not a good legal defense for the agent in the event of a complaint/arbitration.

https://www.ethics.net/a/misrepresentation-and-ignorance-a-dangerous-blend-for-ethics

1. What penalties can occur for her?
- Commission chargeback at a minimum.
- If securities licensed, a public and likely permanent entry on her FINRA U-4 record.

2. Can I get in trouble for accepting it although I thought it was common practice?
- I doubt it. The reason for not rebating is primarily to not "buy business" and create a more level playing field for all agents.

3. Does relationship matter at all since there is a family connection?
- I can't answer that for you. I doubt that taking someone to court would help... but neither is selling an unsuitable product that you're essentially stuck in for 7-10 years or longer.

4. What is my likelihood of getting out of this with my initial premium (forget the foregone gains) without mention of the rebate?
- Probably pretty good. That would be a settlement that most insurance companies would offer to help settle the case without going to court. I've seen complaints against advisors that are reported on their U-4, where there was some misunderstandings, and the company would "make the client whole" by returning original premiums, etc.

I would probably call the insurance company's compliance department and tell them of your concerns, what you want, and let them take it from there.

 
Last edited by a moderator:
1. If reported to the DOI, her license would most likely be suspended for a period of time. If I had to guess, I would say anywhere from 3mo to 1yr.

If reported to the Insurer, she will most likely never be able to do business with that carrier again (or at least for a certain number of years). The Carrier might also report the Agent to the DOI depending on the circumstances.

If the Contract is Rescinded, the Agent will then owe her Commission back to the insurance carrier (comp is in the 4%-7% range on most products)


2. You would not be in trouble because you were not aware it was illegal. Technically they might could go after you, but they wont. Only if you knew it was illegal (or you initiated it) would they go after you.


3. Relationship does not matter. Only relationship that matters here is the Agent / Client relationship.


4. You have a chance of it. How long has it been since you took out the contract?

Most states give you a 30day "free look" where you are able to cancel the contract free of charge and receive 100% of your Premium back. Some states give you 60... but if I remember right, its 30 days in IL.

So if still within that time frame, you can still get your original Premium back with a single phone call to the insurance company.

If you are outside of that time frame, it is more complicated and not guaranteed to happen. However, you probably have a decent chance of it.... especially if she offered the Rebate within that 30day Free-Look Period.

I would probably start with the legal department of the insurance company. Write a Certified Letter explaining what happened and stating your wishes for them to Rescind the Contract. I would also (in a polite way) explain that if they dont, you will file a complaint with the state DOI. Start there and see what happens.

Or... depending on the family relationship and situation.... you could let the agent go to the carrier and tell them what happened and what you wish/plan to do.... it would be the best thing for the agent if that was able to happen. The carrier would probably be less likely to report them to the DOI if that happens.

Thanks. Good thing I found this forum. It has been a few years. I grew tired of the evasive answers and excuses to my questions regarding my 1% returns when she stated 6x that.

I was going to write the DOI first. So, go to the carrier's compliance first? In that letter, do I mention the rebate or save it as a trump card?
 
Ignorance of the product and selling something that doesn't work for the client is certainly not a good legal defense for the agent in the event of a complaint/arbitration.

1. What penalties can occur for her?
- Commission chargeback at a minimum.
- If securities licensed, a public and likely permanent entry on her FINRA U-4 record.

2. Can I get in trouble for accepting it although I thought it was common practice?
- I doubt it. The reason for not rebating is primarily to not "buy business" and create a more level playing field for all agents.

3. Does relationship matter at all since there is a family connection?
- I can't answer that for you. I doubt that taking someone to court would help... but neither is selling an unsuitable product that you're essentially stuck in for 7-10 years or longer.

4. What is my likelihood of getting out of this with my initial premium (forget the foregone gains) without mention of the rebate?
- Probably pretty good. That would be a settlement that most insurance companies would offer to help settle the case without going to court. I've seen complaints against advisors that are reported on their U-4, where there was some misunderstandings, and the company would "make the client whole" by returning original premiums, etc.

I would probably call the insurance company's compliance department and tell them of your concerns, what you want, and let them take it from there.

Thanks! She is not securities licensed. I found out that annuities are licensed as insurance products in individual states to avoid the scrutiny of the SEC.

I will write the compliance department. But I ask the same question. Mention the rebate in my initial correspondence?
 
I'll play devil's advocate.

You mention there is a family connection.

Would you rather have your money back, or would you rather protect the connection?

Assuming you are outside the free look and signed a delivery receipt, about the only way you will get the money back is to report the rebate and unsuitable sale. Which will likely destroy and relationship that exists. To be frank, even if you could exercise a free look it will probably destroy the relationship too. To get your money back means the person will be giving back any commission received. It certainly isn't going to cause warm fuzzy feelings for you.

Now, I don't say this to defend her actions or tell you not to do it. You mentioned the family connection and it seems you don't want to damage it, so you might as well be aware of the entire situation.
 
Which has a secondary consideration as to how much the other person cared about the relationship by selling (according to the OP) an inappropriate product and paying "hush" money?
 
Would you report your cousin if she had a drinking problem and she was driving an ambulance. Legally you dont have to, ethically you should. In this case, if you dont report her, she will continue to do this type of things to others. And she can really hurt people. If you report her and she gets suspended for a while, she can come back. Offering a rebate usually is not a lifetime ban or anything. And there are quite of few on this board that can help her getting started the right way. If you care abut her, you should report her and also be a good relative and help her straighten out her life.
 
I'll play devil's advocate.

You mention there is a family connection.

Would you rather have your money back, or would you rather protect the connection?

Assuming you are outside the free look and signed a delivery receipt, about the only way you will get the money back is to report the rebate and unsuitable sale. Which will likely destroy and relationship that exists. To be frank, even if you could exercise a free look it will probably destroy the relationship too. To get your money back means the person will be giving back any commission received. It certainly isn't going to cause warm fuzzy feelings for you.

Now, I don't say this to defend her actions or tell you not to do it. You mentioned the family connection and it seems you don't want to damage it, so you might as well be aware of the entire situation.

Thanks. You thought process is exactly why I have not executed upon the complaint process just yet. However, I came to the following conclusion:

A commission earned via dubious means is not a fair or just commission. At this point, she should count her blessings that all I seek is my initial investment and not lost investment income.

Moreover, I asked myself "What type of individual manipulates someone in their 30s to invest nearly $500K in a product that will never generate the returns stated by the agent? If she has committed this action against me, then who else has she committed the action against?"

This runs contrary to training the agent must have received. It violates suitability and diversification practices at a minimum.

And to those who asked if I value the relationship, I will only answer by saying "i valuED the relationship greatly at one point. But when trust is violated (especially amongst family), all bets are off - especially when she know points the finger at me and claims it was my fault for selecting Annuity A vs Annuity B from the same company, although both did not suit me well.
 
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