Licensed insurance producers may sell annuities, including indexed annuities without having security designations. However, their sales practices in advising clients how they can fund these annuities can leave them open to charges of acting as an unlicensed investment adviser. An insurance producer who wittingly or unwittingly acts as an unregistered investment adviser for present and potential clients can face an administrative complaint from the Massachusetts Secretary of State, seeking sanctions and fines.
In the case of Ryan P. Skinner, a licensed insurance producer, the Secretary of State, William F. Galvin, who regulates security sales in Massachusetts, has charged Mr. Skinner and his companies with acting as an unregistered investment adviser in an alleged scheme to convince seniors to liquidate securities to purchase fixed indexed annuities through his company.
The secretary’s complaint seeks, among other remedies, the disgorgement of profits and imposition of fines.
Mr. Skinner and his company Summit focused on selling fixed indexed annuities
According to the Secretary’s complaint, Mr. Skinner focused on marketing fixed indexed annuities to seniors by giving them investment advice without being licensed as an investment advisor.
While not licensed to sell securities, Mr. Skinner does hold an insurance producer license with the Massachusetts Division of Insurance. Under this license, he can sell insurance products that mimic the returns of security-based investments that would otherwise require a securities license.
Fixed indexed annuities are insurance products offered by most life insurers. These annuities differ from variable annuities that directly offer purchasers returns based on securities such as mutual funds. The fixed indexed annuities offer a promise of additional returns based on the issuing insurer measuring the financial return to the annuitant on a stock index such as the Standard & Poor’s 500-stock index.
In a fixed indexed annuity, the return is only a promise by the insurer to pay under the terms of the annuity, a return based on the financial results of the external index referenced in the annuity contract. Since fixed indexed annuities are insurance products that do not have a direct relationship with regulated securities, their sale only requires that the insurance company’s agent have an insurance producer’s license.
When it comes to insurance sales, there’s no such thing as a “free lunch”
The Secretary of State’s complaint alleges that Mr. Skinner’s business model was to have seniors attend a free luncheon where Mr. Skinner makes a presentation to convince them that he could provide them with advice to help them maximize their Social Security and retirement income.
He would then seek individual meetings with the prospects from the luncheons at their homes. He would identify himself as a “retirement specialist” or “financial planner” and not as an insurance salesman. He allegedly claimed in his pitches to offer personalized financial advice and planning services to his prospective clients, but instead simply would, according to the complaint, sell the same type of fixed indexed annuity products to the clients who accepted his advice.
One-hundred and twenty-eight clients out of one-hundred and fifty-eight clients were sold the same annuity
To the Secretary, Mr. Skinner did not give personalized advice, legally or illegally. Instead, he sold most of his clients the same annuity from the same insurance company to get the best commission he could. Out of the one-hundred and fifty-eight clients the Secretary’s complaint mentions, one-hundred and twenty-eight were sold the same annuity from one company. Allegedly, Mr. Skinner and his companies sold some clients the same annuity repeatedly.
Seven percent on annuities sold leads to $4 million in commissions
According to the Secretary’s complaint, Mr. Skinner and his companies received a seven percent commission on the annuities sold and between January 1, 2015, through August 20, 2019, were paid $4,034,636.37 in commissions from the sale of annuities
In the complaint, the Secretary lists seventeen anonymous investors, sixteen of whom are sixty or older. The seventeenth investor was fifty-five years old investor who resided in a nursing home.
All liquidated retirement or investment accounts to purchase annuities from Mr. Skinner. In each case, Mr. Skinner, calling himself at times a “financial planner,” advised them on selling or liquidating their 401k, 403(b), IRA, or brokerage accounts to buy annuities.
Mr. Skinner and his companies received $255,631.50 in commissions from the conversion of these investors’ security accounts into annuities.
Advising clients to sell their investments to buy annuities leads to the Secretary’s complaint
Under Massachusetts security law, an “investment adviser” is a person who is in the “business of advising others, either directly or through publications or writings, as to… the advisability of investing in, purchasing, or selling securities, or…who, as an integral component of other financially related services, provide the foregoing investment advisory services to others for compensation…”
If a person fits the definition of an investment adviser, and they are not otherwise exempt, they must register as an investment adviser before they can advise about buying and selling stocks or other securities.
Neither Mr. Skinner nor his companies were registered investment advisors while they were allegedly advising the seventeen investors to sell securities to buy the annuities they were selling.
According to the Secretary’s complaint, Mr. Skinner and his companies would make recommendations that prospects who had securities liquidate them from their retirement accounts to purchase fixed index annuities from them. They would also recommend that clients surrender existing annuities and incur significant early withdrawal penalties. In other cases, the complaint alleges that he recommended that prospects liquidate their entire life savings to purchase annuities sold through him.
The Secretary alleges that this advice concerning security sales made Mr. Skinner and his companies unregistered investment advisers subject to punishment as per the complaint.
Secretary seeks restitution, disgorgement of profits, and fines among other remedies
The remedies that the Secretary seeks against Mr. Skinner and his company include:
- Permanently barring Mr. Skinner and his companies from advising Massachusetts residents to sell securities to purchase annuities.
- Requiring Mr. Skinner and his companies to provide restitution to compensate investors for those losses attributable to their wrongdoing.
- Requiring Mr. Skinner and his companies to disgorge all profits and other direct or indirect remuneration received from their alleged wrongdoing.
- Imposing an administrative fine upon Mr. Skinner and his companies in an amount and upon such terms and conditions as the hearing officer may determine; and
- Such further actions as may be necessary or appropriate in the public interest for the protection of Massachusetts investors.
Under the Massachusetts Administrative Procedures Act, Mr. Skinner and his companies have the right to an adjudicatory proceeding before a hearing officer at which they may present evidence, cross-examine witnesses for the Secretary, present their witnesses and subpoena third-party witnesses and documents.
