I don’t know where to begin or who to blame: The annuity agent trying hard (and very creatively) to market indexed annuities? Or the carrier or carriers he represents? The regulators? Maybe it’s just a manifestation of “The Process” out of which negative results emerge from the efforts of good people.
Today I introduce you to Mr. Tony Bass, although I have never met him in person. I have met him online. My guess is that he is a very decent man who has undertaken a misguided indexed annuity marketing campaign. I’m sorry to be critical of his methods but I can’t ignore them given that they are on display for the entire English-speaking world to hear and see.
Mr. Bass’ medium is the right one. He’s using video to convey his story professionally and effectively. I applaud him for delivering it in this manner. It’s his story”s content that I believe is simply fraught with problems.
Regular readers will be familiar with the long and detailed exploration of annuity sales practices that has accounted for so much attention at this site. Today I offer you a particularly egregious example of how the public can be misled about indexed annuities. This one is for the text books. I sincerely admire creativity. Mr. Bass seems to have plenty that could and should be channeled into compliant marketing strategies.
Mr. Bass’ example of indexed annuity marketing demonstrates the limitless creativity of producers. It also demonstrates how misleading sales practices are making the leap to digital delivery, a development that brings with it new levels of liability potential for indexed product providers. Any pretense that a misleading marketing campaign might be confined to an agent’s local territory is blown away once it has been migrated to the internet. Moreover it’s going to be potentially more difficult for a provider to deny knowledge of its agents’ poor sales practices when those practices are exposed for all to see on demand.
In his YouTube.com video Mr. Bass tells viewers that hs is “President and Financial Wealth Strategist for Bass Financial Solutions, a nationwide wealth management firm.”
Bass’s nicely produced video extols the virtues of his “strategies” that “guarantee a minimum rate of 13.68% over the next twelve months.” According to bass, consumers ‘pay nothing to implement these strategies.” He invites viewers “to receive more information about the retirement accounts and strategies, and finally become part of the informed group of successful investors versus the uninformed group that’s being robbed each and every year.”
Bass’ video never explains what the “strategy” is or how it is able to pay 13.68%. It’s implied that the answer will be discovered by visiting his website. More on that, later.
Bass’ target market is 401(k) pan participants who have left their employer and have a critical decision to make in regards to their accumulated 401(k) account values. In his video Bass tells viewers that it is a mistake for employees to leave accumulated assets in their previous employer’s plan, and also that it is a mistake to roll those assets into a new employer’s plan.
Bass explains that millions of investors change jobs each month and that many make “huge mistakes when it comes to how to handle their retirement accounts.” To sway viewers from considering keeping retirement assets in their previous employer’s plan, Bass raises the specter of Enron and MCI WorldCom and states, “Ask some of the Enron and WorldCom employees how this worked out for them.”
Bass explains that it is a mistake to rollover retirement assets into a new employer’s plan because it “limits investment choices.”
“What’s the Best Solution?”
In the movie Bass asks, “So what the best solution?” He states that the best solution is, “Rolling your retirement account into an investment where you have total control over your money by investing in the best financial products in the marketplace.”
Bass’ marketing strategy gets most interesting when you read his free report. It’s astonishingly misleading, in my judgment. Entitled “How to Maximize Your 401(k) or IRA after Leaving or Retiring From Your Previous Employer”, like the movie the report also focuses on the examples of Enron and WorldCom in order to frighten readers into not keeping their retirement assets in 401(k) plans. The report states that rolling over to an IRA is “the only practical way of re-gaining control of your life savings.” According to the report an IRA rollover is “hands-down the best choice.”
Bass is also on the side of making life more convenient for potential clients. His report states:
“Something else to consider is the convenience and ease of management
that comes along with consolidating your retirement accounts into one
professionally managed IRA account. If you receive statements from
multiple fund companies, you might be less inclined to review each one
and simply add them to your “financial stuff” file, which you may not
review often enough. Consolidating accounts will improve the ability to
manage investment activity and maximize performance results.”
Bass’ report then goes on to extol the virtues of his firm’s “no-fee accounts” that come with “phenomenal guarantees” and “access to accounts offering “13.68% guaranteed growth.”
From the Bass report:
“At Bass Financial Solutions, Inc. you will have the opportunity to invest
your money in several of the industry’s top investment accounts, and
several offering GUARANTEED rates of returns. Most of our clients are
interested in the 13.68% Guaranteed Return Program. We can offer this
guarantee in writing from one of our top investment companies in the
Along with this tremendous guarantee you get the following:
• NO fees or commissions to pay EVER!
• NO stock market risk to your principle EVER!
• NO losses – ALL gains are automatically “locked-in” each year!
• NO taxes to pay – Tax deferred until you need the money!
Hammering Mutual Funds
Bass’ report is sharply critical of mutual funds. It states that “even though millions of investors own mutual funds inside their 401(k) s and IRAs, many would be better off transferring their mutual funds to an indexing strategy. Indexing participates in the upside gains of the market (like your stocks and mutual funds) with the downside risk of losing your principal (like CDs). In other words, you literally get the best of both worlds wrapped in one investment.”
Next Bass’ report implies that mutual finds have expenses that are high, that the average portfolio manager has insufficient on-the-job experience, and that the average mutual fund turns over “90% of their portfolio annually.” Bass’ report even hammers no-load mutual funds.
Bass wants investors to “Stop paying unnecessary fees and risking your investments in the market with all the political uncertainties that exist today. Why not get the same type of performance with no fees, and a guarantee that your principle is
protected 100% of the time.”
The report advises that “ Some of our most popular and sought after ‘indexing strategies’ offer a 13.68% GUARANTEED first year return on your investment and a 10% bonus on day one.”
Part of a Dangerous New Trend?
I searched Bass’ company on Google and found a link to the site www.tonybass.net. There I learned that Bass Financial Solutions is a registered investment advisory firm in the state of Georgia. This has caused me to think more about the recent trend among annuity agents who seek to form registered investment advisory businesses in various states as opposed to Federal RIAs.
I think that when annuity agents become registered investment advisors they undertake a potentially dangerous course if they persist in acting as annuity agents in the traditional manner. Moreover, if the motivation to become an RIA owes to the desire on the part of the agent to side-step broker-dealer oversight it’s almost surely to ultimately play-out badly for the agent. Why?
RIAs are fiduciaries by definition. Annuity agents, on the other hand, are bound to uphold the best interests of the insurance companies they are licensed to represent. Can an individual simultaneously serve two different agendas? Can RIAs simultaneously put their clients interests ahead of their own while still carrying on their traditional annuity sales and marketing activities? To me these are oil and water paradigms and the two competing agendas cannot coexist within the same client relationship. Generally speaking I think the idea of annuity agents becoming RIAs is a formula for disaster for all parties.
What is Bass’ “Top Investment Account?”
After reading Bass’ report I believe that his agenda is primarily to sell Allianz Life’s MasterDex 10® annuity. Unfortunately, this is never revealed in Bass’ marketing materials.
MasterDex 10 is a complex fixed indexed annuity that offers a 10% “bonus” on premiums paid during the first five contract years. When added to a base interest rate of 3.5% plus one year’s worth of compounding, the stated total first year rate becomes 13.86%. If not explained properly the 10% “bonus” can be highly misleading. In the context of Bass’ marketing materials a consumer would naturally believe that the “13.68%” is a “real” meaning realizable net cash return on rollover assets. It’s not, of course.
MasterDex 10 is arguably one of the least liquid indexed annuities ever marketed. Its focus is annuitization and Its surrender penalty is effectively perpetual. The annuity must be liquidated in systematic payments that begin not less than five years after contract inception and over a period lasting not less than 10 years. In other words, over a minimum of 15 years. Why?
Think about the economics behind this annuity. It “pays” a 10% bonus to the consumer, a 9% commission to the writing agent and a 3% commission to the marketing company that wholesales the annuity. That’s a total of 22% paid out by an insurance company which invests the premiums it receives in bonds that pay about 6%, annually. The only way to make this work is to restrict liquidity to systematic payments with below-market internal interest assumptions over periods that last many years. It’s telling that MasterDex 10 is the most popular indexed annuity ever sold.
Marketing That’s A Long Way from Being Compliant
The example of Mr. Bass’ YouTube video and report are vivid reminders that some contemporary annuity agents’ sales practices are a long way from meeting acceptable compliance standards. It’s hard to know where to begin in identifying all of the standards these marketing materials seem to violate: invalid and incomplete comparisons with investments; categorizing the annuity as an investment; inaccurate assertions as to the “investment” being “insured”; alleging comparison to CDs; comparing the annuity favorably to mutual funds, etc. Clearly there seem to be violations of “safe Harbor” ruling 151 and Rule 3(a) 8.
On the other hand from Bass’ perspective there may be nothing at all misleading about the video and report. As an RIA he is his own compliance officer. Of course, RIAs are generally subject to audit including the content of their marketing programs. I do imagine, however, that Allianz Life might take issue with much that’s portrayed in these marketing materials. Perhaps an Allianz Life representative will choose to comment on this.
What Would a Consumer Looking at Bass’ Materials Think?
What would a typical 401(k) investor think after watching Bass’ video and reading his report? I believe they’d be quite excited about moving their retirement assets into Bass’ “strategies” and “investment accounts” paying 13.68% guaranteed. They’d probably like the fact that they can receive “the upside gains” of “stocks and “mutual funds” without the “downside risk.” And I’m sure they would be comforted by the fact they their monies invested in these “strategies” and “investment accounts” are insured “up to an unlimited amount” by the National Association of Insurance Commissioners.”
Allianz is Really Trying
Allianz life has recently stated a strong commitment to upholding consumers’ interests. I believe this is a sincere effort. I also believe that Allianz Life had no prior knowledge of Bass’ strategies for marketing MasterDex 10. Rather, this incident is more likely a symptom of a free-wheeling annuity agent culture that sees producers engage in virtually whatever it takes to bring in their needed level of sales.
I’ve written extensively on how this culture took root and also about the vicious cycle at work that sees more pressure put on agents with each negative article that lambastes annuities in the consumer press. Agents see no hope in a marketing strategy that publicly identifies them as individuals with an explicit agenda to sell annuities. That this pattern must be arrested is not in dispute. The only question is how. The benefits of annuities are too vital and too timely to not find a way.
To address the root causes that lead annuity agents to engage in questionable sales practices I’ve spent a good part of the past five years leading Wealth2k’s development of compliant, next-generation communications networks, streaming educational video, advisor-branded micro sites and real-time monitoring capacity for compliance officers all designed to help annuity agents transition to a better/more compliant way of gaining new business. Agents cannot unilaterally implement such innovations, however. I believe these are inevitable capabilities that annuity providers must introduce if they stand a chance of saving the indexed annuity business in its present form.
Sales practices like those used by Mr. Bass are a virtual invitation to the SEC to intervene in this messy situation. That would be tragic, in my judgment. Is it finally time for indexed annuity providers to take urgent action?
©Copyright 2007 David A. Macchia. All rights reserved.