Filed Under:Annuities, Variable

Who Will Be the Next Glenn Neasham?

SPECIAL COVERAGE: The Prosecution of Glenn Neasham

Glenn Neasham: Canary in a coal mine? (AP Photo/Andre Penner)
Glenn Neasham: Canary in a coal mine? (AP Photo/Andre Penner)

Lake County, California, is said to be known for a few things besides having the state’s largest freshwater contained lake—pear production, bird watching, wineries, recent meth lab busts and Glenn Neasham, the convicted insurance agent who thought, he claims, he was selling a good product to a competent senior.

In the wake of Neasham’s felony conviction for theft, a jail sentence to go along with it, and his ongoing legal battle to get that conviction overturned, financial advisors and insurance agents are wondering if they might also fall into the same legal hole that Neasham cannot seem to escape. While the chances are slim for a replication of all of the factors and personalities in Neasham’s case to reassemble themselves elsewhere, there is no safe harbor in current law to prevent a jail sentence for an agent who sells an annuity to a customer who may turn out to have dementia or Alzheimer’s at the time of the sale.

Put another way, this time from an unofficial statement from 2012 by the chair and vice chair of the NAIC’s Life Insurance and Annuity Committee, “an insurer shall maintain reasonable procedures to detect recommendations that are not suitable. This may include, but is not limited to, confirmation of consumer suitability information, systematic customer surveys, interviews, confirmation letters and programs of internal monitoring.”

The NAIC Suitability of Annuity Transactions Model Regulation, however, is not required to become law in each state under Section 989J of the Dodd Frank Wall Street Reform and Consumer Protection Act until June 16, 2013. Moreover, violation of suitability laws does not appear to trip any felony statute. According to the model regulation’s summary, a violation “may result in an insurer, general agency, independent agency or insurance producers being ordered to take reasonably appropriate corrective action for any consumer harmed by the violation.”

While the NAIC has done much work on suitability, it does not seem to have plans to pursue this issue. It appears that neither the NAIC’s Life Committee or the Market Conduct Committee are working on it. It has been suggested that some feel it would not be appropriate for regulators to develop standards regarding mental competency, since that would require a professional medical opinion. Diagnostic services are indeed a whole other ball of wax, and requires, besides a degree, much more liability coverage. At least for now, the regulators' focus will continue to be on suitability and unfair trade practice standards.

However, the fact that the strengthened model law covers annual income, financial situation and needs, objectives and intended use of the annuity, there would appear to be all of the ingredients for at least a cursory test of mental acuity at the point of sale. “In a discussion with a client of all of these matters, I think it is going to be pretty apparent if there is impairment in having this conversation that would give an adviser cause to say, ‘Gee, I can’t get this information that I need,’” said Ron Panneton,  National Association of Insurance and Financial Advisors (NAIFA) senior counsel.

“More prosecutions, especially with state resources right now, are probably not happening, she said. Abelson mentioned looking into larceny cases under the false pretense law, or theft by false pretenses.

Lake County, California is also a unique place.

Also, Robert Miller, M.S., M.A., president of NAIFA, said in New York State, his neck of the woods, nothing is brewing, nor has he heard of anything in the works.

“Obviously New York is a very regulatory — I am sure it has registered there. I think anyone in the financial services has a target on their back in this environment,” Miller warned.

However, there are senior suitability protections already provided for in Florida law. Yet an effort to make it a felony to deceive seniors with an unsuitable annuity product failed in the legislature in 2008 as part of the John and Patricia Seibel Law enactment from June 2008.

The Act was named after a Venice, Florida couple in their 80s, who were sold $600,000 worth of annuities that could not be touched without large penalties for 15 years.

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Nichole Morford

Nichole Morford
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