California resident victimized by a (Nea)sham?

By Sheryl J. Moore

Moore Market Intelligence


By now, many of you have read my balanced perspective of the Glenn Neasham case on ProducersWEB. The aforementioned blog was drafted after having read only one article on this case, admittedly not having access to all the facts of the case. The purpose of the piece: to ask our industry to look at the case from an outsider’s perspective.

I took a lot of heat for that piece. Notwithstanding my countless hours of work on Rule 151A, my advocacy work with regulators, my five years of responding to every negative and inaccurate article published on indexed annuities, and my general hard work to defend independent agents’ business — I was attacked. Surprisingly so. I anticipate the following piece will get me no less negative response.

There are a handful of issues that I have to get off of my chest about the Glenn Neasham/Fran Schuber annuity case. First, everyone has been so quick to jump to Glenn Neasham’s defense. One field marketing organization has gone to the lengths of using the case as a recruiting opportunity; rallying the industry to build-up Neasham’s legal defense fund.

Really?

Do these people truly give a darn about Glenn Neasham? They continue to push blogs, ads and articles that mention the Neasham case. Most of these pieces are less substantive than they are persuasive, as if crafted to lead the reader to believe that this FMO will “stand-up for his/her business” the same way that they are “standing up” for the accused. Is there a possibility that this FMO is using the Neasham case merely as a means to recruit new agents and increase agent contracting with their firm?

If so, it’s deplorable.

Those who manipulate situations to benefit themselves disproportionately, as compared to the victim are nothing more than predatory. Let’s keep it real: Call a spade a spade. Don’t hand me a plate of dog excrement and tell me its pink ice cream.

Many are trying to take advantage of the Neasham case to increase their bottom lines: whether it is increasing clicks, readership or recruiting. I just wonder if it has occurred to Neasham that some have motives that are not entirely altruistic.

Secondly, let’s be very clear on the annuity that Neasham admittedly sold to 80 percent of his prospects, including Fran Schuber.1 I am on the record for declaring the MasterDex 10 annuity as one of the most innovative products ever introduced to the annuity industry. I stand by that. After all, this is the product that overcame the objections on bringing up guaranteed lifetime income with annuity clients.

The product itself is not good or bad; no insurance product is. As long as an insurance product is soundly priced, it is undoubtedly suitable for someone. What may not be so suitable is that in the past, a number of insurance agents marketed as a plain old deferred annuity. Too bad it isn’t one.

It is an income annuity — a deferred income annuity.
As a product expert, I’ve been more than a little irritated about how some Neasham defenders have spun the features of this two-tiered annuity, as if it God’s gift to the insurance industry. Yes, there was a 10 percent bonus on the annuity, and it did offer relatively attractive rates, as compared to other indexed annuities. But what would you have to do in order to keep the bonus and the gains on the contract?

Let me break it down as simply as possible.

This is an annuity that requires a minimum five-year deferral period. Thereafter, the annuity purchaser must annuitize, for a minimum 10-year period certain.

What if they don’t? They lose the 10 percent bonus, retroactive to day one. They lose all fixed and indexed gains on the contract, retroactive to day one. In return, they receive 1.5 percent interest on 87.5 percent of the original payment. Period.

The product specifications on my website say the surrender charge on this annuity lasts forever. Why?

As an example, let’s say my grandfather bought the aforementioned annuity at age 84. Ten years later, at age 94, grandpa asks to cash surrender his annuity. No problem. He just needs to annuitize the contract for at least 10 more years in order to retain his annuity’s full value (that means he is age 104 when the annuitization period expires).

If he’d waited 20 years after purchase to initiate surrender, it would be no different (except he’d be 114 — likely dead — at the end of the annuitization term). No matter what, grandfather must annuitize his contract for at least 10 years, after at least five years of deferral, to retain his full policy value. This is the rationale for affirming the annuity of having the potential for infinite surrender charges.

But, take heed. This isn’t a problem. As long as the purchaser understands these provisions, and is okay with them, who cares? On the other hand, I beseech you consider how many of these annuity purchasers truly have understood the deferral/annuitization requirements of this two-tiered annuity. The fact that only 2 percent of clients annuitize their contracts may provide additional insight on the matter.

Would the MasterDex 10 have been a suitable annuity product for someone like me? Yes, it could be. For Fran Schuber? You tell me.

The primary motivator for this companion piece to my previous blog is a resource called The Insurance Forum. If you are unfamiliar with this trusted publication, it is one I have subscribed to for the entirety of my insurance career and zealously recommend to others. The publication’s editor, Dr. Joseph Belth, is an unrivaled insurance researcher and reporter, as well as a renowned professor emeritus of insurance in the Kelley School of Business at Indiana University.

In this month’s edition of the aforementioned publication, I was able to obtain additional facts on the Neasham case. Here, I share them with you. I would like to reiterate that following details were only brought to my attention after ProducersWEB published my initial Neasham blog. Unless otherwise noted, the bolded items below were obtained in my review of the abovementioned issue of The Insurance Forum.2
  • Glenn Neasham compared annuities to certificates of deposit in his presentation to Fran Schuber, via an annuity vs. CD form. As an aside, insurance commissioners do not look kindly upon such comparisons.

  • In his presentation to Schuber, Neasham provided cons for the CD and pros for the annuity in the previously-referenced form. There were no pros presented for the CD, nor any cons for the annuity. Full disclosure of the implications of the annuity transaction would warrant that pros and cons were presented for both products.

  • The annuity was presented to Schuber as offering “stock market like returns without risk.” Indexed annuities, in fact, provide limited interest, based on the performance of a stock market index, without risking loss of principal or gains, as a result of market performance.

    Indexed annuities are not intended to perform comparably to the stock market, but to outperform fixed annuities by 1 percent to 2 percent. Furthermore, all annuities (regardless of how they earn interest) have an element of risk; should the annuitant cash surrender while penalties apply, they may receive less money than what they originally paid for the contract.

  • The CD that was surrendered by Ms. Schuber, in order to fund the annuity, was paying 4.75 percent interest quarterly at the time it was cashed-out. The average fixed annuity rate at this time was 5.07 percent and the average CD rate at this time was 2.32 percent.

  • Neasham prepared a CYA letter for Schuber to sign. The letter stated (among other things), “After [five years], I can annuitize if I choose.” I don’t know that I would say that annuitization of her annuity was a choice, but more of a prerequisite.

  • The aforementioned CYA letter also stated that Schuber designated her boyfriend, as well as her boyfriend’s daughter, as the beneficiaries on her annuity “of her own free will and choice.”

    I don’t know what to say here. Is this common? This designation was made of the annuitant’s “free will,” as opposed to designating any of her own family members as beneficiaries on her annuity?

  • Neasham received a commission of 8 percent for his sale of the annuity to Schuber. This was the average commission payable to sales agents on indexed annuities at that time, according to an indexed sales market report.

  • Neasham did not pull Schuber aside (away from her boyfriend), to question her independence and mental stability, at any time. Why not? I am not suggesting that Neasham should be a qualified mental health professional, nor that he conduct a thorough exam. However, Belth remarked on the personal interview that he conducted with Schuber (the same year that the annuity purchase was made):

    "…it appeared Fran [Schuber] lacked the mental capacity to comprehend and answer [Belth’s] questions or recall the annuity transaction with Neasham. She was very reliant on Lou [Schuber’s boyfriend] for the answers to [Belth’s] questions, and for telling her what she knows and understands." (p. 46)

  • Neasham justified the lack of flexibility in cash surrendering the annuity he sold to Schuber by claiming that Schuber had a “gambling problem” and that by placing her money in the annuity, Neasham was preventing her from “getting to it and gambling it away.” Even if Ms. Schuber has a gambling problem, is it the responsibility of anyone outside of Schuber’s family/guardians/attorneys to make such a decision?

  • Neasham ran an ad promoting a “13.575 percent first-year yield” vehicle, without the approval of his home office compliance department. Advertising guidelines established by the insurance departments of the U.S. make it very clear that this is a condition of publishing any advertisement.

    After reading all of these things about the Neasham case, I decided to do some research of my own, and I hit the Web. Realizing that anyone can publish items on the Web, I took all entries with a grain of salt. However, there were handfuls of comments made at one website in particular (http://www.ripoffreport.com/Search/Glenn-Neasham.aspx), which seemed consistent with behavior I had personally observed of Neasham in blogs and Twitter chats.

    While I will not comment on the nature or veracity of some of these accusations, I will comment on the issue of Neasham’s relentless communications to myself and others. It seems strange to me that Glenn Neasham is sidestepping his legal counsel, and working overzealously to defend himself in the public eye on his own.

    One of the first things I learned in my criminal law classes is that you “shut up” and “don’t say a thing without your lawyer being present.” Even after suggesting Neasham refrain from providing interviews and publicly commenting on his case, without the oversight of his counsel, Neasham forges ahead in his unrelenting defense. Am I alone in my scrutiny of this?

    Do I feel that Glenn Neasham should have been convicted of theft in the case of Fran Schuber’s annuity purchase? I cannot say. We may want to consider a question that was asked of me by a friend outside of the business; “if you were approached by a stranger who took your wallet, and 15 years later he returned your wallet, its contents, and interest, is this theft?”

    My personal response led me to the conclusion that the scrutiny of this case is not contingent on whether or not Fran Schuber made money on her annuity purchase.

    Ultimately, no one is in a position to judge without all of the facts of the Neasham/Schuber case. However, the information presented here certainly gives the reader pause. In closing, I am reminded of something that my mother used to tell me when I was a teenage girl. She frequently remarked of my friends that that others “would judge me by the company that I kept.”

    Considering the points made in this blog, I ask you — what would your clients think of your public comments on the Neasham case?

    1 Wilson, Paul. "Agent Facing Jail Time for Selling an Annuity: Interview with Glenn Neasham." ProducersWEB. Summit Business Media, 9 Mar. 2012. Web. 13 May 2012. <http://www.producersweb.com/r/pwebmc/d/contentFocus/?pcID=d1d7b6201a207f83df3223f0372782fe>.
    2 Belth, Joseph M. "The Theft Conviction of an Agent Who Sold an Annuity to a Senior with Dementia." The Insurance Forum 39.6 (2012): 41-48. Print.