Oakes & Fosher is currently investigating FINRA brokerage firms, such as ONESCO and stockbrokers, that recommend moving from a traditional investment into a Variable or Fixed Whole Life Insurance Product.
A disturbing trend among stockbrokers licensed as insurance agents is to recommend purchasing a “whole life” insurance policy as an investment. These products are sometimes referred to as LIRPs (Life Insurance Retirement Plans) and are sold to fund an individual’s retirement by using tax-free loans from the insurance policy. These policies involve high premiums, commissions, and fees and are often sold to the public without adequately representing the costs and tax implications.
What Are Variable & Fixed Whole Life Insurance Products?
Variable and fixed whole life insurance products are permanent life insurance policies providing a death benefit and offering investment. This investment component accumulates cash value over time which the policyholder can borrow against or invest further.
In variable whole life insurance, the cash value is invested in sub-accounts similar to mutual funds, and its value can increase or decrease based on the performance of these investments. As a result, there’s potential for a higher return and risk.
On the other hand, fixed whole life insurance has a cash value that grows on a guaranteed, fixed rate of return. The insurer carries all the investment risk, and the policy’s cash value accumulation is much more predictable and stable.
Both types offer tax advantages as the cash value growth is tax-deferred, and loans taken from the policy are typically tax-free. Stockbrokers and their agencies only highlight these advantages to clients without disclosing the negative aspects.
The Problem With Changing an Existing Investment to an LIRP
Many individuals borrow against these plans to pay the premium. Once the loan value is gone, the policies lapse, and the loans taken are reclassified as taxable income, leaving the investor with a large and unexpected tax bill.
Numerous brokers recommend that clients liquidate current investments in stocks, bonds, or mutual funds and replace these investments with the whole life policy. The transaction should ideally be facilitated by a trusted financial advisor who understands the client’s financial situation and long-term goals.
The advisor must explain all policy aspects, including the fees, premiums, potential returns, and risks. Doing so ensures the client is well-informed and makes decisions that align with their risk tolerance and retirement objectives. However, brokers making these recommendations may act in their own self-interest and breach their duty to the investor.
The Fiduciary Duty of a Stockbroker
A stockbroker’s fiduciary duty is a legal and ethical obligation to act in the best interests of their clients, putting their needs above their own. This responsibility involves fully and fairly disclosing all material facts and avoiding conflicts of interest that might compromise the client’s financial goals.
Furthermore, a stockbroker has a duty of care that requires them to thoroughly research and understand the financial products they recommend to clients. They must ensure the appropriateness of these products for each individual client’s risk tolerance, financial situation, and investment objectives. Violating these obligations can have significant legal consequences and damage the broker’s professional reputation.
Investors who have been victims of unsuitable advice to switch their retirement funds into whole life insurance policies have the right to pursue FINRA arbitration against the involved stockbrokers or agencies. FINRA arbitration is a streamlined, less formal, and relatively quicker dispute resolution process compared to traditional courtroom litigation. An aggrieved investor can file a claim citing the misconduct, such as failure to disclose material facts, misrepresentation, or breach of fiduciary duty.
In the arbitration, the claimant can seek compensation for their financial losses and any additional harm caused by the inappropriate investment recommendation. A panel of arbitrators, chosen by both parties, listens to the evidence and arguments provided by both sides.
They then render a binding decision. Investors must consult with an attorney experienced in securities arbitration to ensure the best possible representation in their case, such as Bruce Oakes and Richard Fosher of Oakes & Fosher, LLC. Our FINRA arbitration attorneys can guide you through the complexities of the process, helping you present a strong case and seeking maximum recovery on your behalf.
Contact Oakes & Fosher if You’re Concerned Whether Whole Life Insurance is a Good Investment for Retirement
If you or someone you know has lost money in these types of insurance policies, please contact the attorneys at Oakes & Fosher, LLC. We handle these cases nationwide and will do a no-cost consultation and evaluate your potential claim. All cases are handled on a contingency fee arrangement, meaning that you do not pay any attorneys fees unless we collect for you.