Christopher MarkowskiArticle, Wall Street FraudLeave a Comment

We have been working diligently over the past two years doing everything and anything to expose the many unscrupulous sales practices regarding annuities. The areas that we have articulated deal primarily with suitability concerns, exorbitant fees and misuse. Unfortunately, we now can add churning and burning to our list.

Lynn Cowan from the Wall Street Journal reported on January 14th that brokerage firm Waddell & Reed switched 6,700 variable annuities to generate fees. They committed the egregious fraud without determining whether the switching was in the best interests of its customers. This is according to the National Association of Securities Dealers.

Between January 2001 and August 2002 Waddell & Reed based in Overland Park, Kansas flipped out of all variable annuities from United Investors Life Insurance and switched them to Nationwide Insurance. The reason for the switch had nothing to do with what was in the best interest of the clients; it was solely about commissions and fees. Waddell & Reed, at the time, failed to obtain an agreement to receive a share of certain fees collected by United Investors Life Insurance. Their remedy to this commission problem was to take it out on their clients.

According to the NASD, Waddell & Reed engaged in an “aggressive campaign” to switch its customers from one annuity to another. I would call that characterization an understatement of great magnitude. Estimates have put the number of clients that took needless and extensive losses at l,400. In addition, more than 700 customers were switched into more costly annuities instead of being directed to others that were less expensive and offered more benefits and greater flexibility. This conflict of interest was due to the reoccurring fact that certain annuities were providing a much greater payday to Waddell’s brokers.

The NASD stated that Waddell brokers expressed concerns to management that these switches weren’t in the best interest of the clients. One broker even noted that Waddell & Reed was trying to “prod and scare” its sales force into making switches. We have been aware of these “sales drives” and the “churn and burn” mentality throughout Wall Street in regards to stocks and options. The flipping of annuities is a completely new animal.

This “campaign” taken on by Waddell & Reed was quite lucrative. These fraudulent but lucrative switches generated $37 million in commissions for Waddell and cost its customers almost $10 million in surrender fees. Waddell & Reed, when asked to comment on the situation, of course, declined. If you feel you have been victimized by this scam or soothing similar at a different firm please do not hesitate to contact us at (800) 447-0579.

Leave a Reply

Your email address will not be published. Required fields are marked *