The Illinois Securities Department has revoked the registration of two investment adviser representatives for inappropriately liquidating clients' annuities to fund the purchase of fixed-indexed annuities.
Thomas N. Cooper and Susan B. Cooper were barred from selling securities in Illinois, as was their practice, Senior Financial Strategies Inc., which does business as Pinnacle Investment Advisors. The husband-and-wife duo was also fined $10,000.
According to the order issued by Jesse White, secretary of state in Illinois, the transactions go back to 2006 when the Coopers recommended that a married couple transfer $46,000 from a Lincoln Benefit Life Co. variable annuity that was held in an individual retirement account to purchase a fixed-indexed annuity from Aviva USA. The Coopers recommended that the clients retain $1,000 in the variable annuity in order to keep nearly $30,000 in death benefits, according to the order from Mr. White.
The clients left $2,000 in the account but lost $27,000 in death benefits due to the transfer. Both clients complained to the department, spurring audits of the Coopers' practice in 2008, according to the order.
An investigation by regulators showed that between Feb. 26, 2008, and June 9, 2008, the Coopers sold 65 Aviva fixed-indexed annuities, garnering some $426,281 in commissions, the order said.
The secretary of state's office examined 12 cases involving clients of the Coopers who liquidated annuities or IRAs to fund the purchase of fixed-indexed annuities from Aviva, the order stated.
The 12 investors, who were an average age of 73, racked up a total of $122,630 in surrender charges from the liquidation of annuities from Allianz Life Insurance Co. of North America, American Equity Investment Life Holding Co., EquiTrust Life Insurance Co. and Old Mutual Financial Network, according to the order.
In Illinois, as registered investment adviser reps and as investment advisers, the Coopers are held to a fiduciary standard.
Securities cops in the state said that the transactions were unsuitable and not in the clients' best interests.
Although fixed-indexed annuities are insurance products, the Coopers' registration as investment adviser reps placed them in the jurisdiction of the state's securities department, said David Finnigan, senior enforcement attorney for the Illinois Securities Department. “This was more based on the fact that they are providing investment advice and are registered with the department,” he said.
Thomas Kelty, an attorney representing the Coopers, said that he filed an appeal against the order and a motion to stay the enforcement action until the appeal has been concluded, which will take at least 90 days.
Mr. Kelty argued that the state also had violated the insurance department's jurisdiction. “For the securities department to summarily declare that an annuity insurance product is a security is a broad leap of faith and a leap of the law,” he said.
But James R. Mumford, first deputy commissioner in Iowa's insurance division and securities administrator, said: “I see this as a case against a producer — an investment adviser — and they violated the fiduciary responsibility. It has nothing to do with the issue as to whether indexed annuities are securities or not.”
Aviva spokesman Kevin Waetke confirmed in an e-mail that the insurer terminated its relationship with the Coopers in 2009 and declined to comment further.
E-mail Darla Mercado at [email protected].
