Richard Blumenthal

Recently, Connecticut Attorney General Richard Blumenthal lauded the Superior Court ruling as a “first-in-the-nation court victory” declaring that insurance broker Acorida broke the law when if failed to tell consumers about “hidden kickbacks” it paid in exchange for favoring a group of preferred insurers.

In 2007, Acordia Inc., then the nation’s fifth-largest brokerage, changed its name to Wells Fargo Insurance Services.

Blumenthal said the court agreed with his contention that Acordia had a fiduciary duty to be open and honest with its clients, “and that it violated that trust,” he said in a statement.

The state court ruled that Wells Fargo, through Acordia, should have disclosed when it accepted contingent commissions from insurers because such payments constituted a conflict of interest. Blumenthal said Connecticut’s case is the first in the United States to go to trial on the issue of whether an insurance broker owes a fiduciary duty to its clients to disclose contingent commissions.

“This case is a significant victory for insurance consumers – and honest, competitive businesses that were illegally shut out of the market by Wells Fargo’s exclusive pay-to-play club,” Blumenthal said. “This victory is the first of its kind in the country – a resounding message to insurance brokers about their legal duty to be open and honest with clients.”

‘Partnership’ problems

According to Blumenthal’s office, in 1999, Acordia initiated the “Millennium Agency System Partnership” to obtain financial support to offset the costs with launching its new agency management system “AMS Segetta.” That system would directly link its offices online with a few “partner” insurers, providing an “inside track” for future business with Acordia. Under the partnership, certain insurers were offered various ways to aid Acordia in meeting its financial objectives, including grants and other incentives over and above standard contingent sales bonuses, officials said.

Insurers Atlantic Mutual, Chubb, The Hartford, Travelers and Royal SunAlliance all agreed to participate in the plan, Blumenthal said.

A Connecticut Superior Court judge ruled the partnership constituted a conflict of interest between Acordia and its clients because the insurance broker received more money when Millennium insurer products were sold to its clients.

The court agreed with the attorney general’s position, according to Blumenthal, that Wells Fargo broke the law when it concealed these partnerships from clients.

Katie Ellis, a spokeswoman for Wells Fargo, told IFAwebnews.com that Blumenthal “mischaracterized” the court ruling and the company believes the decision is based on an incorrect interpretation of Connecticut’s Unfair Insurance Practices Act.

“As a result, Wells Fargo will appeal the court’s decision and is confident that it will be reversed,” Ellis said.

She added that the court order specifically states that Wells Fargo’s brokers, through Acordia, “acted in the best interests of their customers, that no customer suffered any financial detriment, and that all customer premiums were the same regardless of the contingent commissions.”

Ellis said that in 2005, the Connecticut General Assembly rejected the attorney general’s office requirement to disclose contingent commissions and since that time. “Wells Fargo has voluntarily been disclosing all compensation it receives, including contingent commissions,” she said.

Wells Fargo to appeal contingent commission ruling in Connecticut via IFAwebnews.

The bank holding companies reported $23.6 billion, compared to $23.7 billion in 2008, according to findings from Michael White Associates and the American Bankers Insurance Association. The findings are based on data reported to the Federal Reserve Board by the 932 top large bank holding companies.

The top bank holding companies in the analysis were GMAC, CitiGroup, Wells Fargo & Co. and BB&T Corp.

The top 50 bank holding companies in insurance revenue attained a mean concentration ratio of total insurance revenue to noninterest income of 13.6%, said Valerie Barton, executive director of ABIA. Among the top 50 in this Concentration Ratio, the mean was 45.9%, she said.

“Those levels of Insurance Concentration demonstrate considerable contribution to BHCs’ noninterest income,” Barton said in a statement. “Insurance consistently proves it is a valuable revenue-generating activity during good times and bad times.”

During the first six months of 2009, 581 large top-tier bank holding companies (62.3% of all top-level large BHCs reporting) earned some type of insurance-related revenue, compared to 568 in the first half of 2008.  In addition, 56 BHCs reported earning some insurance underwriting fee income from underwriting or reinsurance activities, up from 52 BHCs a year ago.

Insurance underwriting and reinsurance income increased 1.3% from $17.3 billion at June 30, 2008, to $17.5 billion in the first half of 2009, as 56 bank holding companies engaged in sales activities that produced insurance underwriting fee income.

Bank holding companies’ insurance revenues hold steady via IFAwebnews.

Liam E. McGee

The Hartford, Conn.-based firm announced that Liam E. McGee, 55, will assume the dual role today (Oct. 1), succeeding Ramani Ayer, who announced his retirement in June. Ayer will resign Oct. 1 and officially retire Nov. 1, following a brief transition period, according to The Hartford.

Ayer, who spent his entire 36-year career with The Hartford, became chairman and CEO in 1997.

McGee previously served as president of the consumer and small business bank for Bank of America Corp., operating the nation’s largest retail bank, serving more than 50 million consumer households and small businesses. Prior to joining Bank of America in 1990, he held senior positions at Wells Fargo.

Michael G. Morris, The Hartford’s presiding director, said McGee’s “strong track record of success in leading large, complex financial services organizations makes him the ideal person to build on The Hartford’s strong foundation.”

“He has an outstanding combination of leadership skills, financial acumen and operational and technology experience, along with a demonstrated ability to evolve and profitably grow businesses in response to changing business environments and customer needs,” Morris said in a statement.

Ayer added that in addition to his proven leadership in the financial services industry, McGee, “shares The Hartford’s values, including product and customer service excellence, integrity and a commitment to giving back to the communities in which we operate.”

McGee comes on board to a company that received $3.4 billion in aid through the government’s Capital Purchase Program, after losing more than $2.7 billion in 2008 and $1.21 billion in the first quarter of this year.

In a statement, he noted “clear opportunities to create competitive advantages” in the industry.

“By leveraging and building on The Hartford’s strengths, we will enter our third century as an industry leader, well positioned to achieve the expectations of our customers, shareholders, partners and employees,” McGee said.

A native of County Donegal, Ireland, McGee oversaw numerous projects for Bank of America, including the corporation’s global technology and international delivery as well as leading the integration of a number of acquisitions by the bank, including FleetBoston, MBNA and La Salle.

McGee named new chairman, CEO of The Hartford via IFAwebnews.

Dick Kovacevich

Dick Kovacevich, 65, said he will step down as the company’s chairman and a director at the end of this year and retire soon after, although no specific date was given. Kovacevich has spent 23 years with Wells Fargo and agreed last year to continue in the role of chairman for an interim period to focus on challenges in the financial services industry and a Wells Fargo-Wachovia merger. He was named chairman in 2001.

On Dec. 31, 2008, Wells Fargo obtained Wachovia, with the combined business creating the world’s fourth largest insurance firm and the largest bank-owned insurance brokerage in the United States, according to company officials. Earlier this year, Wachovia Insurance Services officially adopted the Wells Fargo moniker nationwide.

Wells Fargo’s board of airectors echoed an announcement made late last year that Joe Stumpf, the company’s president and CEO, would succeed Kovacevich as chairman effective Jan. 1, 2010. Stumpf, 56, a 27-year veteran of the company, succeeded Kovacevich as CEO two years ago.

Phil Quigley, lead director for Wells Fargo’s board, said in a statement, “Tens of thousands of our team members have helped make Wells Fargo one of the world’s most admired companies but they couldn’t have done it without the bold, determined and visionary leadership of Dick Kovacevich.”

Quigley noted several accomplishments by Kovacevich, including creating and articulating the company’s “ground breaking vision – to satisfy all our customers’ financial needs and help them succeed financially.” Kovacevich was also credited for the oversight of the acquisition of more than 300 financial institutions by Wells Fargo and advocating for new federal laws to increase competition and customer benefit in the industry.

During Kovacevich’s tenure with the company, Quigley said, the market value of Wells Fargo stock rose from $4 billion to more than $130 billion.

Quigley also praised Stumpf’s leadership in helping to engineer the Wachovia acquisition and keeping the merger integration “smoothly on schedule” this year.

Stumpf is “the best person in the country to be leading our company through the challenges and enormous opportunities ahead,” Kovacevich said of his successor.

Wells Fargo chairman Kovacevich to retire; CEO named as successor via IFAwebnews.

The suit over the STOLI policies, filed in federal court in Manhattan, N.Y., named trustee Wells Fargo Bank, service provider Lancier Group and trust preparation firm Alston & Bird as defendants.

They were accused of using a trust, established on behalf of the man who obtained the $45 million in life policies in 2005, to pay unwarranted commissions and fees, according to a report at the AM Law Litigation Daily website.

Judge Barbara Jones dismissed the suit, filed by the policyholder’s son, because he did not have standing, even though he was both a beneficiary and trustee to his father’s life insurance trust, the report said.

The father, who obtained the policies through XE-R New York, an intermediary, obtained a loan to pay the premiums and established the trust, which the son said paid the defendants’ commissions and fees to which they were not entitled, according to the report.

Lawyers for the plaintiff told the website they plan to re-file the case with a new trustee.

Federal judge dismisses STOLI suit in New York via IFAwebnews.

John Middleton

John Middleton’s shift follows Wells Fargo & Co.’s acquisition late last year of Wachovia’s. banking and insurance operations for $15.1 billion in stocks.

In his new role, Middleton will direct Wells Fargo’s offices in Norfolk, Richmond and Roanoke. He will be responsible for operations, carrier relationships, sales, and placement of all commercial and private risk practices, according to company officials.

“We’re delighted to have John leading the Wells Fargo Insurance Services team,” said John Meehan, regional managing director for Wells Fargo Insurance Services’ Mid-Atlantic Region, in a statement. “He brings extensive brokerage experience and is a proven leader who will help us better serve our customers and foster the continued growth of our business.”

Middleton has more than 30 years of insurance brokerage experience. With Wachovia’s insurance operations in Virginia, Middleton was responsible for commercial and private risk practices, and sales.

With the acquisition last year, the combined Wells Fargo Insurance Services and Wachovia Insurance Services make up the fifth-largest insurance brokerage and the largest bank-owned insurance brokerage in the United States, with more than 200 offices in 37 states and 9,600 insurance professionals.

Former Wachovia agency head in Virginia moves to Wells Fargo post via IFAwebnews.

John Dowd

Dowd will oversee wealth management in the region, including private banking, credit, bank brokerage, trust, investment management, planning and insurance services.

In other news:

*Angela Kyle was hired as senior view president and head of New York Life’s individual annuity department and Sue Eriksen as chief technology officer and senior vice president of the corporate information department. Both will work in New York, N.Y.

* Anne MacDonald joined the New York, N.Y.-based Travelers Companies as executive vice president and chief marketing officer.

* Ronald J. Duswalt of Old Castle Financial Advisors, based in Uniondale, N.Y., was honored with Hornor, Townsend & Kent’s (HTK) Blue Chip Award, given to someone who best exemplifies the principles of HTK and its owner, Penn Mutual.

*Thomas Direnzo of Fulton, N.Y., and George Denniston of Newark, N.Y., two Allstate insurance agents, received the Agency Hands in the Community Award for participating in community service.

* Gary Stoneberg, owner of the Allstate Insurance agency based in Endwell, N.Y., received its Regional Champion award for his success in customer satisfaction and retention and business growth.

New York Career News: Dowd joins Wells Fargo, other notables via IFAwebnews.

Peter A. Hutton

In his new role, Hutton will develop and oversee the successful implementation of NIA’s sales strategy, including growth of the firm’s property casualty and employee benefit sectors.

In other news:

*John Dowd was named regional managing director at Wells Fargo Wealth Management Group for the Northeast Region, including Connecticut, Massachusetts, New Jersey and New York.

*Joanne Fagan was appointed by MetLife Auto & Home as a regional sales manager in New Jersey, overseeing the company’s growth plans for the central portion of the state.

* Joseph P. Hudson was named vice president of William Gallagher Associates for its office in Princeton, N.J.

* Naveen Anand was appointed as global chief operating officer of Bermuda-based Torus Insurance Holdings and will be based in its office in Jersey City, N.J.

* Members of Insurance Agents & Brokers of New Jersey (IIABNJ) will serve on national Independent Insurance Agents & Brokers of America committees: Cappy Stults of Hightstown, N.J.-based Allen & Stults on the Consumer Agents Portal Task Force and the Professional Liability Committee; Jacki Frank of Tri County Agency based in Brick, N.J., on the Council for best Practices; Sheri Acconzo, IIABNJ president and CEO, will chair the IIABNJ Co-branded Website Oversight Task Force.

*Brian Richard of Bridgewater, N.J.-based Allstate Insurance received the Chairman’s Inner Circle Conference award from Allstate for his success in customer satisfaction and retention, business growth, and assistance with the company’s agency force.

*Peter K. Thornton was recognized by the Society of Certified Insurance Counselors for his dedication and leadership and also for maintaining the Certified Insurance Counselor designation for 10 years.

* Jean Scott Mandell joined Family Wealth Management Group in East Hanover, N.J., as a chartered financial analyst.

* Maria Vutskova was appointed as an account executive at Bordentown, N.J.-based New Day Underwriting Managers.

New Jersey Career news: Hutton joins NIA Group, other notables via IFAwebnews.

McDonald Investments (now KeyBanc Capital Markets Inc.) was fined $425,000, IFMG Securities was fined $450,000, Wells Fargo Investments LLC was fined $275,000, PNC Investments was fined $250,000 and WM Financial Services Inc. (now Chase Investment Services Corp.) was fined $250,000.

Brokers at each of the firms operated out of branches of affiliated banks, selling variable annuities, mutual funds or UITs to bank customers, who, in many instances, were elderly. The brokerage customers were referred by bank personnel, and sales of these financial products represented a significant portion of each firm’s business, according to FINRA.

“Today’s actions underscore the need for firms operating bank branches to have effective systems and procedures in place to monitor sales of variable annuities, mutual funds, and UITs,” said Susan Merrill, FINRA’s executive vice president and chief of enforcement. “Bank broker-dealers have access to a broad customer base through their retail bank branches. Proper care must be taken to appropriately supervise sales to those customers, particularly the elderly who can be unfamiliar with securities products as they seek alternatives to certificates of deposit and other bank offerings.”

McDonald Investments also was charged with unsuitable variable annuity sales to elderly customers.

All five companies agreed to the findings, although none admitted to any of the charges.

The McDonald Case

In the McDonald case, FINRA found that, between June 2004 and January 2006, a former broker at the firm made 32 unsuitable sales to 25 elderly bank customers, recommending each customer purchase a VA with an enhanced death benefit rider. The customers, all 78 years old or older, were either too old to be eligible for the rider, or very close to the ineligible age. Those customers who purchased the VA with the enhanced death benefit rider received little or no benefit from the rider despite paying higher fees for it over the life of the annuity, FINRA said.
FINRA ordered the firm to offer the 25 affected customers the opportunity to rescind their unsuitable transactions and receive the initial value of their purchase, plus interest and any surrender charges required, adjusted for any withdrawals made.
McDonald also was found to have failed to take adequate remedial steps in response to red flags indicating that the broker was engaging in unsuitable VA transactions, including nine customer complaints filed against the broker about her annuity sales, and the broker’s practice of consistently engaging in a pattern of selling elderly bank customers the same variable annuity with the same enhanced death benefit rider, FINRA said.
The firm placed the broker under heightened supervision, but while under heightened supervision, the broker undertook all 32 unsuitable transactions and the firm approved them. FINRA also found that McDonald failed to implement adequate VA supervisory systems and procedures.

The IFMG Securities Case

IFMG Securities, which no longer operates as a broker-dealer, was found to have used trade blotters to assess suitability and approve VA and mutual fund transactions that did not capture key information, such as the customer’s investment time horizon, risk tolerance and other financial assets – all details that are necessary for the principal to conduct an adequate suitability review. Also, important suitability information on the blotters was presented in a way that did not reflect customers’ true income or net worth; the blotter reflected only the highest number in the range of values from which it was taken, FINRA said.
In addition to the blotter review, IFMG’s Compliance Department performed a review of account documents about 10 days after transactions had been completed to further assess suitability and to ensure that all paperwork had been completed. However, because the transactions had been completed by that time, the compliance department often had difficulty obtaining the requested information and completing its review. As a result, FINRA found, a large backlog of unapproved transactions developed at IFMG from 2004 through 2006. That backlog delayed final approval of transactions for weeks, months and in some cases, for over a year. Despite knowledge of the growing backlog, IFMG failed to take effective action to address the problem, which continued until the firm changed to a pre-approval suitability review system between May and August of 2006.

The Other Cases

In the Wells Fargo, PNC Investments and WM Financial Services cases, FINRA found that the firms did not provide adequate guidance to principals who approved variable annuity transactions, or in the case of WM Financial, UIT transactions.
Prior to November 2004, Wells Fargo provided no factors to guide principals in determining suitability. From November 2004 to September 2006, it instructed principals to consider such factors as a client’s liquidity needs, tax deferral needs and time horizon, without providing guidance on how to apply such factors to determine suitability, and did not capture information relevant to such factors. After September 2006, Wells Fargo removed its list of factors to consider when recommending VA transactions, leaving its principals and brokers without any guidance on how to determine suitability in VA transactions, FINRA said.
FINRA found that PNC Investments instructed its principals to consider factors such as a customer’s source of funds, health and investment time horizon without collecting or recording all the information necessary for principals to assess suitability and to consider factors such as the client’s age, need for tax deferral and liquidity without providing guidance on how to apply such factors in their suitability review. Principals therefore applied inconsistent definitions. Firms are required, if they include such factors in their procedures, to have systems in place to implement the factors.
In the case of WM, the firm had no procedures specific to determining suitability of UIT transactions, and provided no guidance on how to review exception reports concerning exchanges from VAs and mutual funds into UITs. Compliance personnel, therefore, were provided no criteria to identify patterns of exchanges over time or whether such exchanges were suitable. WM also required certain paperwork to be completed for exchanges, capturing the rationale for the exchange and all fees, including surrender changes, but provided no guidance to principals to use the information to determine if the exchange was suitable, according to FINRA.
Wells Fargo, PNC and WM also failed to detect patterns of potentially questionable transactions, which could indicate a broker’s failure to properly tailor recommendations to each customer’s investment needs and situations. At Wells Fargo and PNC Investments, these included patterns of brokers selling the same guaranteed minimum income benefit rider to all or nearly all customers who purchased certain VA carriers’ products. WM Financial Services failed to adequately investigate certain brokers’ potentially unsuitable VA exchanges into UITs, despite concerns raised by the firm’s compliance department.

In settling each of these matters, none of the firms admitted nor denied the charges, but consented to the entry of FINRA’s findings.

Variable annuity, mutual fund, UIT sales net fines for five firms via IFAwebnews.

The combined business makes Wells Fargo the world’s fourth largest insurance firm and the largest bank-owned insurance brokerage in the U. S., officials said. The combination places $15.5 billion of risk premium in property, casualty, benefits, international, personal lines and life products, company officials said. It will have nearly 200 offices in 37 states and employ more than 3,700 insurance professionals

Wells Fargo Insurance Services USA will become a direct subsidiary of Wells Fargo Insurance Services next year.

In May, Wachovia Securities began using a new name, Wells Fargo Advisors, officially rebranding its business under its new parent, Wells Fargo & Co., a diversified financial services company with $1.3 trillion in assets. The brokerage businesses of Wells Fargo and Wachovia Securities have more than $900 billion in assets, nearly 16,000 full-service financial advisors and 6,000 licensed financial specialists.

Wells Fargo & Co. obtained Wachovia last Dec. 31.

Wachovia insurance operations take on new Wells Fargo moniker via IFAwebnews.