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Valic Being Investigated In West Virginia

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"AIG spokesman John Pluhowski says ... the representatives were "not authorized or directed to give investment advice; they were only authorized to sell a fixed-annuity contract."

 

Comment: Oh, really? Gee, I thought that one of the reasons that investors should not do things on their own is so that they can receive all of that good advice that salesmen provide. On the one hand, insurance companies tout the advice that they provide to customers, but here a company says that it does not authorize such advice to be given.

 

"The lead plaintiff, a teacher, accuses Valic of fraud, alleging the company misled employees to get them to invest in a "commission-driven" product."

 

Comment: I would like to accuse the lead plaintiff of ignorance and stupidity for investing in Valic in the first place. (Fair disclosure: I accuse myself of having the same qualities years ago when I purchased a TSA from Galic, which, if anything, is even worse than Valic.)

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AIG's Mr. Pluhowski says that "no plan contributions were used to pay commissions" - this is just a slimy way of not telling people the truth and making it appear that no commissions were in fact paid. Where else would the commissions come from?

 

Oh I know what they'll say - from the general account of the insurance company. Of course, why would the company pay funds from their general account unless they expected something in return for it? In reality - no contributions - no commissions. I'm willing to bet that the commissions were tied to contributions in some form or fashion - why not just admit that?

 

Its interesting that the VALIC reps were only "authorized to sell a fixed-annuity contract" - I guess when all you have is a hammer.....

 

It seems the retirement system has some fault of its own - they should have had better disclosure requirements and a better education campaign. VALIC was chosen to sell a product to the educators and they did that.....this is why it is so important to have a fiduciary involved.

 

ScottyD

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AIG's Mr. Pluhowski says that "no plan contributions were used to pay commissions" - this is just a slimy way of not telling people the truth and making it appear that no commissions were in fact paid. Where else would the commissions come from?

 

Oh I know what they'll say - from the general account of the insurance company. Of course, why would the company pay funds from their general account unless they expected something in return for it? In reality - no contributions - no commissions. I'm willing to bet that the commissions were tied to contributions in some form or fashion - why not just admit that?

 

Its interesting that the VALIC reps were only "authorized to sell a fixed-annuity contract" - I guess when all you have is a hammer.....

 

It seems the retirement system has some fault of its own - they should have had better disclosure requirements and a better education campaign. VALIC was chosen to sell a product to the educators and they did that.....this is why it is so important to have a fiduciary involved.

 

ScottyD

 

 

Can you explain what was the fraud that was committed in selling an insurance product that was approved by the WVA insurnance Dept?

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Can you explain what was the fraud that was committed in selling an insurance product that was approved by the WVA insurnance Dept?

 

For all of the times we have disagreed, Intruder, I think that you may have a valid point. According to the article:

 

"The lead plaintiff, a teacher, accuses Valic of fraud, alleging the company misled employees to get them to invest in a "commission-driven" product."

 

This seems par for the course for any product. A salesman is trying to sell something in order to get a commission. I don't see any fraud there per se. As I have stated before, the job of a salesman is to sell, and no one should be surprised when they do just that.

 

Now, did the salesmen lie or deceive? That I do not know. But if all the salesmen did was to convince buyers to invest in a lousy product, I don't see any fraud.

 

I do see ignorance and stupidity on the part of the buyers, though.

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Intruder,

 

I didn't accuse anyone of fraud.

 

I will say that there several huge conflicts of interest that should have been managed. VALIC had no fiduciary responsibility - thus they had every incentive to push whatever they could earn a commission on and to put down anything that they didn't sell - they had no incentive to do right by the employee.

 

The fraudulent part could have been where VALIC induced people to move out of the DB plan into their Fixed Annuity by telling them things that may have not been true or by showing illustrations that might not have been accurate.

 

As I stated earlier, this environment was created by the WV TRS, though VALIC apparently took full advantage of it. I wonder if VALIC ever told someone that their fixed annuity product was not the best choice for a participant?

 

Also - the interest rate dropped from 8.5% to the minimum 4.5%, this would seem like a bait and switch. I've done a cursory check of rates and it appears rates where high in 1991 and falling rapidly so that they were low by 1993. What would be interesting is to see the entire interest rate history and track it against treasuries. Keep in mind that this product had a minimum guarantee of 4.5% - thus there were many years in the past where it vastly outperformed other similar annuities.

 

I think the fraud that is being sued for is for misleading statements causing people to move out of the DB and in the VALIC DC Fixed Annuity.

 

ScottyD

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Intruder,

 

I didn't accuse anyone of fraud.

 

I will say that there several huge conflicts of interest that should have been managed. VALIC had no fiduciary responsibility - thus they had every incentive to push whatever they could earn a commission on and to put down anything that they didn't sell - they had no incentive to do right by the employee.

 

The fraudulent part could have been where VALIC induced people to move out of the DB plan into their Fixed Annuity by telling them things that may have not been true or by showing illustrations that might not have been accurate.

 

As I stated earlier, this environment was created by the WV TRS, though VALIC apparently took full advantage of it. I wonder if VALIC ever told someone that their fixed annuity product was not the best choice for a participant?

 

Also - the interest rate dropped from 8.5% to the minimum 4.5%, this would seem like a bait and switch. I've done a cursory check of rates and it appears rates where high in 1991 and falling rapidly so that they were low by 1993. What would be interesting is to see the entire interest rate history and track it against treasuries. Keep in mind that this product had a minimum guarantee of 4.5% - thus there were many years in the past where it vastly outperformed other similar annuities.

 

I think the fraud that is being sued for is for misleading statements causing people to move out of the DB and in the VALIC DC Fixed Annuity.

 

ScottyD

 

 

No one said that you accused anyone of fraud. I merely asked the question of what could be the fraud that was alleged by the participant? Since the contract was approved by the Insurance Dept why is it fraud to provide a higher introductory rate that would decline to a guaranteed rate after two years?

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I believe the fraud alleged was that VALIC misrepresented the benefits of switching out of the DB plan into their DC plan. I haven't read the civil suit, so I don't know for sure.

 

As for the interest rate thing - it all depends on how the product was filed with the insurance commissioner and how they claim to credit interest and then it depends on the interest rate environment. I didn't say that this is where I thought the fraud was, though with the way many insurance companies credit interest it does happen that high initial rates are replaced with low ongoing rates. I don't know what the interest crediting history was for this product, but as I indicated, it appears that the drop in rates WAS due to market conditions (again, that was only a cursory review).

 

ScottyD

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