State Regulators Investigate World Financial for Deceptive Sales Practices

Security regulators in Missouri, Utah, and a number of other US states are accusing World Financial Group of making variable annuities sales that are unsuitable and misrepresenting investment returns. A number of World Financial customers have filed private arbitration claims making similar allegations.

World Financial is owned by Dutch insurer Aegon NV. World Financial’s agents sell annuities, life insurance, and mutual funds. Unlike more traditional sales teams, however, agents make money based on a pyramid-like multilevel sales system. The agents receive most of their compensation from their recruitment of new agents rather than products sales, including a portion of the commissions that the new agents make.

In a 2006 investor presentation, Aegon USA CEO Patrick Baird called World Financial a “real recruiting machine.” The company reportedly has over 18,000 licensed insurance agents and brokers and, according to an Aegon executive in 2006, about 80,000 “producers,” which includes unlicensed and part-time members. Those who meet sales goals are awarded jewelry and trips to the top of the Transamerica Building in San Francisco that is owned by Aegon. Clients are sometimes invited to join the company’s sales force.

Some state securities officials, including those in Iowa, Alabama, and Minnesota, have filed lawsuits to bar inappropriate sales practices by World Financial. In 2006, Missouri’s securities commissioner fined World Group Securities and broker Jolee Martin $150,000 for enticing seniors to invest $1.2 million in “unsuitable” variable annuities.

Martin and World Group Securities earned $98,000 in commissions from these transactions. Martin accepted the sanctions, including a four-month suspension and a five-year bar from handling accounts or selling variable annuities to anyone over 65 years of age, but did not admit or deny wrongdoing.

Utah’s Division of Securities has cited at least four World Group Securities brokers since 2006. One couple, Robert and Raleine Allen, filed an NASD arbitration claim against World Group Securities last year alleging misrepresentation that caused them to lose over $500,000 on products that were unsuitable for their risk tolerance. A judge forced the company into arbitration over the proceedings, and a settlement with the Allens was reached.

If you are the victim of inappropriate investment sales practices or any other kind of broker misconduct, contact Shepherd Smith and Edwards today.

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World Financial Group Inc.

Aegon NV

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