I'm not very excited to write this post, but it is a post I promised to readers a couple of years ago. The story involves several physician clients suing a well-known physician-centric financial advisory firm that has been a paid advertiser on this site and whose principals I know personally. In exchange for not permitting comments about the lawsuit in the comments section on blog posts mentioning the firm, I promised readers that when the lawsuit was all said and done that I would write a post about it.
The story didn't turn out the way I expected it to. I expected to be able to share all the proceedings from court, see who was at fault, and either clear the name of the firm or condemn them for their behavior. Instead, like with most lawsuits, it was settled for a confidential amount and both plaintiff and defendant just want it to go away. I think both would rather I didn't even write this post. The main physician plaintiff would not return my phone calls about it and her attorney would not give me any additional information beyond the fact that it was settled. But I felt like a promise made should be a promise kept.
However, instead of trying the defendant (and the plaintiff too really) in the court of public opinion, I thought it would be far more useful to readers to use the lawsuit (which like most lawsuits nobody wins but the attorneys) to illustrate some lessons learned for both financial advisors and their clients.
The Allegations Against the Financial Advisor
The lawsuit was filed by Drs. Liza Capiendo, Oscar Zagala, and Hussam Antoine against Larson Financial along with insurance companies John Hancock and Nationwide. The doctors basically felt they were sold a Variable Universal Life (VUL) policy that they should not have been sold. There were 2 or 3 articles on the internet about it, including this one which roped me in with Larson for taking them as an advertiser, and then things went pretty quiet for a couple of years. Like with most lawsuits, it made all kinds of allegations, and since it was settled and I have no means of substantiating between the “he said, she said,” it is impossible to know which, if any, were true. But they included:
# 1 Breach of Fiduciary Duty: Larson Financial failed to act as a reasonably prudent financial advisor in the following ways:
- a. Advising that multi-million dollar life insurance policies were suitable for plaintiffs who were single and had no children;
- b. Leading plaintiffs to believe that at some point there would be no premium;
- c. Misleading plaintiffs or omitting information with regard to material facts about the policies;
- d. Committing other acts and omissions that are presently unknown to plaintiffs but will be proven at the time of trial.
(Gotta love that last one huh? Only a lawyer can write this stuff with a straight face.)
# 2 Fraud: Larson Financial represented to plaintiffs that purchasing millions of dollars in life insurance as an “investment” would provide them with tax-free income, with eventually no more premium payments. It also represented that these insurance policies were suitable for plaintiffs. These representations were false. Larson Financial knew the representations were false at the time they made them, and/or made the representations recklessly and without regard for the truth.
# 3 Professional Negligence: Larson Financial breached these duties by making unsound financial decisions on behalf of plaintiffs, by placing its financial interests before those of plaintiffs and by advising plaintiffs to purchase insurance they did not need, spending hundreds of thousands of dollars on premiums in the process. As a proximate result of the negligent conduct of Larson Financial, plaintiffs lost hundreds of thousands of dollars in premium payments.
# 4 Unjust Enrichment: John Hancock and Nationwide were unjustly enriched in that they received plaintiff’s premium payments on policies that were purchased as an investment. The enrichment of John Hancock and Nationwide came at the expense of plaintiffs in that the promised financial outcome was never realized. The circumstances of John Hancock’s and Nationwide’s enrichment are such that equity and good conscience restitution should be made.
The doctors asked for $550,000 in premiums paid plus “general and special damages.”
My understanding of the outcome was that three of the four allegations were thrown out in the pre-trial proceedings and then the parties settled, with Larson Financial basically just making the doctors whole for the difference between premiums paid and policy surrender value (i.e. they got their money back,) but presumably due to non-disclosure agreements, nobody was really willing and able to tell me exactly what happened or how much the settlement was for. At the end of the day, both parties lost tons of time, went through lots of hassle, lost money in legal fees, had their reputations damaged, and walked away wanting it all behind them.
In my opinion, the best thing that came out of it was that Larson Financial revamped their process for using VULs such that they do a much better job disclosing how they work, documenting their disclosure process, and ensuring their clients are really committed to holding it for their entire life before purchasing it. As a result, they sell far fewer of them, instead placing client assets into more traditional qualified and non-qualified investing accounts, for better or for worse. I think that's probably a good thing as I've had a polite disagreement with them for years about the percentage of doctors for whom a VUL is a good idea. But I think it's highly unlikely that anyone who buys a VUL from Larson from 2016 on is going to feel they were sold a pig in a poke.
Lessons Learned From This Lawsuit For Financial Advisors
There were lots of lessons learned from this experience. I'm going to split them up into lessons learned for advisors and lessons learned for clients.
# 1 Life Changes
I've run into a few docs over the years who were unhappy with VUL policies they bought through Larson. Most of the time it is a result of changes that took place in their life that lowered their income such that the amount of income required to comfortably pay life insurance premiums was no longer there. The problem with any type of permanent life insurance policy is that, well, it's permanent. For it to work out reasonably well, you've got to hold even a good policy that is appropriate for you until your death. But life happens. People get divorced. They change jobs. They become eligible for much larger retirement account contributions. Their income drops. They retire early. Whatever. And then they're stuck with an albatross around their neck that requires significant ongoing premiums. If you aren't investing significant amounts in taxable in addition to making permanent life insurance premiums, you probably shouldn't be in the policy. Otherwise you're likely to find yourself choosing between 401(k) contributions, a vacation, a new car, and making premium payments for a policy that no longer makes sense for you.
Advisors need to bear in mind that flexibility is often more important than optimizing other aspects of a financial plan such as tax reduction.
# 2 Simpler Plans Are Better Plans
VULs are not particularly easy to understand. There are a lot of moving parts. There are very few investors (among those who want or need a financial advisor) who are going to take the time to really understand how they work. Doctors who use advisors tend to be like patients who say, “You're the doc, whatever you recommend I'll do.” But not understanding what the advisor (or doctor) is really doing can lead to unpleasant feelings when expectations aren't met. It's like a bariatric surgery patient who is now upset that he can't eat as large of meals as he used to. Anybody who had read even a little about bariatric surgery would have realized that. Same with a VUL. Being upset that you're under water 2 or 3 years into it is silly. That's an EXPECTED outcome. At any rate, avoiding complexity with financial plans might make clients not feel like they're getting their money's worth, but it's usually the best thing to do for all involved. If the product is designed to be held for decades, and the client doesn't understand exactly how it works, chances are good the client is going to be unhappy with the outcome. Imagine if the VUL policies purchased by the plaintiffs were purchased just before a bear market instead during a bull market? Results would have been even worse.
# 3 Ongoing Education Matters
If you are going to use a complex plan of some kind (whole life, VUL, defined benefit/cash balance plan etc) you'll need to have a method in place to ensure that the client can be reminded/reeducated why he bought it in the first place. That's also a good time to point out the benefits he has seen so far. Larson has strengthened their ongoing education process since the lawsuit.
# 4 Be Careful with Unique Strategies
The concept of the standard of care is a legal one, but it basically means don't stray too far from the crowd. If your firm is the only firm out there using a tool, you're on much shakier legal ground as a fiduciary than if you're using a tool that everyone is using. This applies to all kinds of strategies. If you're using technical analysis to time the market, picking stocks, using a 401(h), or using a VUL, realize that there are a lot of investment authorities and advisors out there that are going to disagree with your methods. That doesn't mean your methods are wrong, but there is a whole lot more legal risk there when you have a fiduciary duty to a client. If you're using a 401(k) and index funds and recommending student loan payoff, that risk is a whole lot lower. Even if you're a true believer in your unique strategy, unless your client is also (and remains so) it's going to lead to a poor outcome.
# 5 Disclosure is Key
Everyone agrees that disclosure is good and appropriate. But disclosure is the ultimate 50 shades of gray. There's disclosure and then there's DISCLOSURE. With a product like VUL there should be so much disclosure that most people are talked out of doing it. The client should really have to beg the advisor to implement that sort of a plan. Obviously, that doesn't work well with a product that has to be sold. But it's still the right thing to do. Documenting that disclosure process, of course, will also help in the event of a lawsuit.
# 6 Consider Offering a Guarantee
Another thing that might have helped in this case would have been for Larson to offer a guarantee. Perhaps something like “if at any time in the first five years you feel like this isn't right for you, we'll make up the difference between your surrender value and your premiums paid.” Then instead of filing a lawsuit, all the client would have had to do was call up their advisor and tell them they want to do the guarantee. Larson generally wants to do the right thing for their clients (both morally and for PR reasons) so why not just make it formal up front? [Update prior to publication: I'm told that, like health care, there is no way in the financial services industry to do this.]
# 7 Be Careful with Scaling and Incentives
Larson Financial is a big firm, with advisors all over the country. Obviously, some advisors are going to be more knowledgeable than others. The larger your firm, the more difficult quality control becomes.
People also respond to incentives. Larson would argue that they actually make more money in the long run from AUM fees than from VUL commissions, but the incentive of getting money up front from a commission is hardly insignificant, especially for an advisor who may not plan to remain with the firm or in the industry long-term. With bad incentive structures, even good people don't always do the right thing. As you grow your firm, be extremely careful with who you hire and how you choose to incentivize them.
# 8 VULs Are Wrong For Most Docs
Finally, a strategy like this is simply wrong for most docs. If they're not maxing out their 401(k)/Profit-sharing plan, don't know what a Backdoor Roth IRA is, don't have their kids' college accounts adequately funded, still have student loans, and haven't even started a taxable investing account, you're not doing them any favors selling them a VUL.
Lessons Learned For Clients
Let's continue with some lessons that clients (i.e. doctors) ought to walk away from this incident with.
# 1 Life Changes
Just like an advisor needs to remember your life is highly likely to change in significant ways, you need to keep it in mind as well. Don't lock yourself into something for more than just a few years without a very, very good reason to do so.
# 2 Permanent Life Insurance Policies Are Like Marriage
A permanent life insurance policy isn't something you buy willy-nilly. Like marriage, it will be very painful and expensive if you choose to dissolve it prior to death. There ought to be a great deal of time and energy put in before making the commitment. A long courting period and a second and third opinion isn't a bad idea either. I'm not saying they're not right for anybody, but they're not right for most and you'd better be very convinced you are an exception before purchasing.
# 3 Permanent Life Insurance Policies Don't Break Even For a Long Time
Even the best designed policies in the most favorable situations aren't going to break even for 5 years, and more like 10. That's one of the main reasons I generally recommend against them as investments.
# 4 You Can't Just Trust Your “Money Guy”
Financial planning and investing cannot be completely outsourced. I'm sorry. You need to become financially literate. Understand what you're investing in and why. Claims that your advisor “misled you” also make you look stupid for allowing yourself to be misled. If you're uncomfortable with something, put it off, read up on it, and get a second opinion. Think of your financial advisor as a consultant, not the CEO of your financial life.
# 5 You Have To Tell Your Advisor Everything
Another theme I see in people who are unhappy with a policy they were sold is that it turns out they didn't reveal some key detail to the advisor that would have caused the advisor to not sell the policy in the first place. “Oh yea, I have to pay alimony” or “I'm planning to go part-time when the baby is born” or “I was just diagnosed with cancer” are rather important factors to consider when designing a financial plan. Obviously it takes time to build trust with a new advisor, but the process can be garbage-in, garbage-out too.
Nobody wins in a lawsuit situation, but hopefully the entire physician financial community can apply these lessons and make some lemonade out of lemons in this case. I asked for a response to this post from Larson prior to publication (and would offer this opportunity to the plaintiffs as well, but they don't return my phone calls.) This was a response from Larson:
“Dr. Dahle, you are a man of your word and we not only respect this, but we are grateful that you look out for the financial interests of all doctors. This particular situation was certainly a learning experience for all involved and while the primary advisor who worked with these three doctors is no longer with our firm, it has caused us to take a deeper look at how to better serve our physicians in the future. While we cannot share any of the details of this case, what we can share is that given the complexity of this investment tool and the ever-changing financial lives of our doctors, we have implemented many more protocols to ensure that our clients understand all the pros and cons of each investment product and strategy they implement. Although our firm has been in existence for over eleven years with offices all over the country and thousands of doctors under our care; this has been our only lawsuit to date. We care deeply about the doctors that we serve and appreciate you taking the time to lay out some of your helpful perspectives in this blog that will further educate doctors about their options. Our firm has continued to grow these past few years and this experience has taught us more about the things we need to enhance as we seek to “Empower Doctors to Flourish” in the years ahead. Thanks again for being an advocate for doctors!”
What do you think? What lessons can be taken away from this? Have you as an advisor ever been sued? What was it like? Have you ever sued an advisor? Comment below!
[If you are going to leave comments critical of Larson Financial or the plaintiffs be very aware that libel laws can get you and me into trouble. Stick to the facts, clearly identify opinions, and don't write anything you wouldn't be comfortable signing your name to in court. Frankly, I'd rather you just stick to general comments about lessons learned so I don't have to spend the next few years policing this particular comments section. Plus, it's not like a financial firm can defend itself on a public forum given client confidentiality rules.]
Larson says they don’t make anything extra from the VULs and do better or the same with the AUM model. You have said all complaints on Larson are related to VULs. Either Larson is not being honest with their profits on VULs or they’re not making a good business decision. If I was in charge of Larson I would discontinue sales of VULs. In the very rare times a VUL might be appropriate I would offer a referral.
Would you like Paul’s email to send him that suggestion? Actually I probably wouldn’t bother. He’ll have read your comment by tomorrow I’ll bet. But again it leads me back to a comment I made above. If you’re offering yourself out as a “full-service firm” your clients won’t be happy to have to go elsewhere for tax planning, estate planning, insurance needs etc. They want it all under one roof.
At any rate, I think the sale of VULs by Larson advisors has dropped dramatically over the last year or two. Not necessarily because the principals think it’s a bad idea (they all own the VUL they sell or one very similar to it) but because of the reputational hit they take when someone buys it without really understanding how it works and then becomes, how should I put this, “vocally and legally dissatisfied” with their decision to purchase it. Part of that is on the advisor, part of it is on the client, and part of it is, in my opinion, because it’s not appropriate for as many docs as both Larson advisors and clients think it is.
Treating a client you have a fiduciary duty toward in the way you think is best for them is a good business decision even if it doesn’t make you the most money. Where it appears you disagree with the firm is whether selling a given doctor a VUL is “the best way possible”.
WCI –
I am confused by the first sentence of your last paragraph which reads: “Treating a client you have a fiduciary duty toward in the way you think is best for them is a good business decision even if it doesn’t make you the most money.”
When someone has a fiduciary duty as an advisor toward a client, he or she must ALWAYS and ONLY recommend what is in the client’s best interest. Acting in the client’s best interest is essentially the legal definition you cite for a fiduciary in your blog.
For a fiduciary, it’s not “a good business decision” to recommend action that is in a client’s best interest, it is simply a legal requirement.
A bigger point is made better in this podcast from Michael Kitces: https://www.kitces.com/blog/fiduciary-duty-broker-dealer-series-7-license-general-securities-representative-exam/
It’s a good listen well worth your and your readers’ time.
Someone who is licensed to sell a VUL (life licensed and either Series 6 or 7) can not be a fiduciary when they are selling a VUL policy. They are representing the life insurance company and the broker/dealer.
How doctors and dentists let along the general public are supposed to figure out who is wearing which hat and when beats the heck out of me.
Yes, it is also a legal requirement. Following legal requirements is a good business decision, don’t you think?
I agree that the scene is confusing enough that it makes a lot of sense if you have even an inkling of interest to just learn how to do most of it yourself. This whole discussion only concerns those not willing to do that.
When someone sells a VUL policy, they DO NOT HAVE a fiduciary relationship with the purchaser of the policy. It is a good business decision” to “do what you (the VUL sales person) thinks is best for the person buying the policy. A VUL sales person with a good reputation, and many satisfied customers gets those things by doing what he/she thinks is in their customers best interest.
The legal requirement that a VUL sales person has to adhere to is the suitability standard — which may result in VUL policies being sold that are better (more commission) for the sales person and while suitable for the buyer, not in the buyer’s best interest.
Of course, it’s following legal requirements is “good business”. The point I failed to make is that VUL sales people are not fiduciaries (and by virtue of how they are licensed (life and securities) they can not be treating customers with a fiduciary standard. Period.
Really good (professional) VUL sales people (and registered reps at broker dealer) do all they can to act in the best interest of their customers — because doing so is good for business. That’s how they develop excellent reputations. However, they simply are never fiduciaries.
Great website. Plenty of excellent information for your readers. Investment management is, as you point out, pretty easy. Where things get complex for doctors is what your site address — loan repayments, income tax planning, and sometimes, retirement planning. Your site provides terrific information in all of these (and other doctor-specific) areas.
I was a Larsen client from 2013-2014. They started advising me the last few months of anesthesiology residency. They did many wonderful things for me, including finding an excellent physician loan, setting me up to do roth IRA conversions, and setting up my Schwab 401(k) for my new job. The portfolio they set up for me was a bit more complicated than a 3 Fund, but not much more complicated than WCI’s. All investments were low cost index funds, including Vanguard, and DFA funds. They set me up with $4 Million in term life insurance and my wife with $2 Million term life insurance.
Next, they had me make a budget with a set amount each month to go toward investments. However, he wanted me to use that set amount to pay off several higher interest rate Grad Plus student loans before investing.
I paid those off and in December he had me start funding a $30,000 emergency money market fund with which he would start making investments from. Once that was in place he set up a roth conversion for me and for my wife. He also set up a taxable account to invest in once I paid off the rest of my student loans and mortgage. He praised us for living frugally, buying a small house, only owning 1 car, and many other things he wished his other clients would do.
All good so far.
In March at our quarterly meeting he introduced us to Variable Universal Life Insurance. I had not previously heard about them. He wanted to convert $3 Million of mine and $2 Million of my wife’s term life insurance to a John Hancock VUL. I would keep $1 Million in term and drop it after 10 years when I no longer needed that much life insurance. He told me it would take 8-10 years until my investment broke even, that overall his company would make less money this way verses an AUM model, that this product was a good one, but only if I met 4 criteria, young, maxed out other accounts, high income, and was comfortable not needing the money for a long time. He told me that I probably had heard many bad things about VULs (I did not know what they were), but that this product was set up in a way that mitigated most of those problems. And that this was an excellent product to minimize taxes in retirement, which it is. They had done so well with all of my previous investments, why should I not trust them? In April my VUL started taking $5000/month from my checking account (for both of our policies).
In the late summer I started having a financial awakening (similar to religious awakenings). I wanted to know where my money was going. I started looking up my investments. I wrote everything down on a spreadsheet, arranged it by asset class, and started following it weekly. I was stunned to see that my VUL investments were much less than what I had invested, by a lot. I wrote an anxious email asking about this, wherein he reminded me that the fees in this investment were front loaded, but that it was expected to break even in about 8 years, and eventually be profitable.
He did soothe my fears of the VUL, but the awakening led me to Bogleheads and eventually White Coat Investor and Mr Money Mustache. By December I had learned enough that I wanted to take control of my own finances and avoid the AUM fees they were charging for something I now knew I could do myself. I tried keeping up the more complicated asset allocation, but eventually switched to a 3 Fund portfolio (3 funds in each account, as all the expense ratios were pretty similar).
The insurance and management fees for the VUL are high. But when I follow the actual investments, they are doing better than any of my other 3 Fund accounts which own Schwab and Vanguard investments. I attribute much of that to the steady investing every month without regard to how well the market is doing.
I would not sue Larsen financial for selling me this product. I would have appreciated more negative information about it. I should have read more about it on my own, but at the time I didn’t even realize we were making a big change. Had I known about and searched in Bogleheads, I likely would not have bought it. If I could go back in time I might tell myself not to sign up for the VUL, but I do not think it is as devastating a product, as long as I stick with it. I will even see many benefits during retirement. The long term nature of the VUL is probably the most stressful part for me. It is like a $1.2 Million mortgage over 20 years (after that point premiums will be paid from the account, but there will be no more investments).
So that is my long winded journey with Larsen Financial.
Thanks for sharing. Sounds to me like you were treated pretty darn well. The problem with a VUL is you have to be committed to it for life for it to work out well for you. Doesn’t sound like you were really committed to a lifelong $60K/year commitment. Bad on you and your advisor that you paid a big commission on something you weren’t even happy with for a year, much less your entire life. Now you have a tough decision deciding what to do with it.
Glad I got out when I did. Your story sounds eerily familiar to mine, up to the point where you went through with the VUL (same term life numbers, same sales pitch on VUL, etc.).
I’ve written this here before, but mine wanted me to purchase VUL even though I had student loans at 6.8%, and also had no idea about student loan refinancing (and this was in 2014, so not that long ago). He also didn’t help me a bit getting my mortgage, so I’m glad I didn’t pay him since I was still in fellowship when things were free.
It needs to be clarified that they don’t necessarily make less by selling you a VUL. That statement assumes you invest with them your entire life which is unlikely. Also they get the money upfront and time value of money needs to be considered. Frankly [in my opinion] they only say it to try to convince you.
[Careful with the potentally libelous statements, Rex-ed]
Where is the 5k going? What are the investments in the VUL? What is the expense ratio of the mutual funds that are chosen for the VUL product? What is the largest holding in the VUL product? Are you still contributing 5k towards the product each month? Charlie Munger always says to look for the other side of the argument, and know it so well that you could represent both positions. Your transition away from the AUM fee is well founded and appropriate. You make more money by having your index fund with Vanguard or Schwab, rather than paying 50 to 100 basis points to have the same fund under the umbrella of AUM.
If you’re not familiar with the VUL Larson uses, you can learn more here:
https://www.whitecoatinvestor.com/could-there-be-a-good-vul-policy/
https://www.whitecoatinvestor.com/variable-universal-life-insurance-as-a-retirement-account/
Bottom line: It’s invested in DFA funds. So if your alternative is investing in DFA funds in taxable, then your only question is whether you will pay less in taxes than you will pay in insurance costs over your lifetime. (and whether you’re willing to commit to this thing for life.) It’s not a commitment I’m willing to make, so I don’t own one. Kind of similar to the reason I haven’t bought a second cash balance plan (although that’s a much smaller commitment.)
I read the article. A real masterpiece, thanks. I think the flexibility and freedom win, and also totally agree about the innovation down the road that is not yet known. For the vast majority of physicians, maxing out the typical tax deferred space is enough. What if you want to take a one month sabbatical and travel around the world? Pull 30k from your taxable account, and you are good to go. The policies I have reviewed have poor choices with active management and high expense ratios. A VUL with reasonable investment choices does change things to a moderate extent. I think your point about increasing the cost of insurance is an extremely important one. Isn’t that a deal killer? You are betting that the guy on the other end of the trade is benevolent. Can you buy one where they guarantee the expense ratio matches Vanguard, and they won’t increase the insurance premium over the life of the policy? It is risky to commit so much money for so long when the terms can change on the whim of a new manager. Am I missing something about that?
No guaranteed costs of investments.
You can buy guaranteed cost of insurance, gUL, but guess what the costs make it a real money loser for cash accumulation.
GUL generally doesn’t accumulate any cash at all. It’s like level term for life.
That’s just the way it’s setup typically. It can be attempted but again won’t work out bc of high insurance costs since those costs are guaranteed and thus cost a lot more. The person asked about guarantees for insurance. I would definitely not recommend someone try it.
40% S&P 500 fund, ER 0.25%
30% Total International Fund, ER 0.34%
30% Total US Bond Fund, ER 0.25%.
These are the lowest fee funds offered by John Hancock. Coincidentally, they also correspond to a 3 Fund portfolio. They did have some DFA managed funds, but I like this simplicity. And again, despite the slightly higher ER, these investments are doing better than my other investments in similar funds.
They rebalance 2 times a year for me (no further fees).
On my spreadsheets I have the monthly fees each year listed and I keep track of both the returns on just the investments, as well as if that return has made up for the fees, yet.
So far we have decided on keeping the VULs. I am in a high paying spcialty. I plan on maxing out my other retirement accounts each year, and investing a lot in my taxable account, I may have a large amount of money in retirement, and I just might come out ahead minimizing taxes verses fees. Finally, while I plan on living for a long time, there are a few health issues that may come up that might make keeping permanent life insurance a wise move.
I’m not sure how an index fund with higher fees can do better than another same fund which is tied to the same index with lower fees. They should be pretty darned close with any difference due to the ERs.
Unfortunately JH is also one of the companies that has jerked people around with the investments within insurance products. With VAs when they thought the guaranteed elements of income riders were too good they removed them as a possibility on in force customers.
I hypothesize that the better performance is due to the automatic monthly withdrawal and investments without regard to anything else. Also, while index funds follow an index, they do not necessarily have all of the equities, but might instead be a sampling, so there could be some variation. I notice slight differences between the daily rise and fall of my Vanguard and Schwab accounts all the time. Nothing too substantial, but it might add up after a while.
My roth IRA is purchased once a year, so dollar cost averaging has no effect, and chance says that dollar cost averaging beats lump sum investing some of the time. My 401(k) withdraws money monthly, but it is up to me to invest, which I might forget about for a month at a time. I monthly rotate purchasing the 3 asset classes in my taxable account by buying just 1 asset class a month. In all of these purchases I likely have some emotion, too, perhaps trying to buy on the dips and on days I am not working.
Larsen regularly takes residents and fellows out to nice dinners trying to sign them early on. No problem with that, but when we went to one and even met individually once thereafter I felt like I was talking to a richer, better dressed version of a used car salesman. At one point he even asked, do you think I look like Tom Cruise, because I get that a lot? No one thought that to be the case.
This is solely an opinion and only my opinion, and maybe it was just one person, but I am very glad we did not use them for anything. I’ve since heard some not so good stories (such as the ones above). And the positive stories I’ve heard are mostly from people I think know absolutely nothing about finance and are blind to how to manage such things (again, my opinion). Hopefully Larsen is doing right by them and helping them though. Thanks WCI and PoF for helping people for free.
I went to the meeting with the mentality that it was like a Grand Rounds, where someone was altruistically dispensing vital information for the care of my financial life rather than a salesman trying to sell me something. Probably the wrong mentality.
But they are nowhere near as hard sell as a timeshare presentation. Those are some salesmen that routinely convince the most stalwart anti timeshare person to doubt their previously held assumptions.
Nothing to add except observe that this is one blog post where I have seen the maximum number of WCI replies to comments.
Just because an advertiser has been vetted by WCI does not mean that he / she is appropriate for you and that the vetting process Jim uses is the same as what the reader wants. Look, it is your money and if you cannot take of it, someone else will and the end result will not to be to your liking.
You must not have been around for too many years. I used to type a response to nearly every comment posted on a blog post. But now that there are 1000 posts and a typical new one gets 30-150, it’s just a little too much. Besides, someone else usually already posted the response I would post anyway!
Thanks for the post WCI, it was eye-opening for me. Like Impromptu, I feel that I was in the situation of being sold and not looking to buy a VUL policy by Larson Financial in 2013. My brother, who is a dentist, also saw Larson around the same time and despite being single with no kids, over $200,000 in 6-8% student loans, just starting practice, and no retirement plan established was being sold a VUL policy as well. Luckily, he had more sense than I did and decided to not buy the policy and leave the advisor. Hopefully their practices have changed. I was naive at the time in 2013 and now looking back at statements over the past 3.5 years I see that over 15% of my $5765 monthly premium goes to fees/expenses/insurance costs/loads and will continue at this rate for the next 6.5 years. The weighted expense ratio of the funds is 0.50% which could be worse. An equivalent taxable account with a buy and hold strategy in low cost index funds even with counting equivalent term insurance, tax drag, and capital gains at withdrawal should still easily beat the cash value in this policy. Now that I have committed $240,000 in premiums, I stand to lose around $33k in surrender charges and capital gains taxes if I quit now. Going to look into term replacements policies now. What would be the best way to evaluate a VUL to see if it makes sense to cancel the policy at this point? Would it be better to cancel policy and cut the loss or do 1035 exchange into VA?
It’s not clear to me where you stand in the policy. If you’ve got capital gains after only 3.5 years, it sounds like you’re doing well in it. You can walk away, pay your surrender fees and capital gains and do whatever you want with what’s left. But more likely, you’re sitting on a capital loss and want to preserve that by using the VA option. This post is applicable if you’ve already decided what you want to do:
https://www.whitecoatinvestor.com/how-to-dump-your-whole-life-policy/
A big issue for you at the moment would be to compare those costs to the term you might acquire. While with WL, this actually would be a well performing policy at 4 years to have only that much loss, the ULs before surrender charges could be better. I’d also ask your FA for an honest answer if the policy was overfunded to just below MEC levels.
As an advisor, I once attended a two hour CPE course sponsored by the FPA entitled “how to sell annuities without being sued.” It was two hours of saying “get the client to sign the paperwork.” A good part of my practice is helping people get out of these and I’ve so far never met an advisor who understood what they bought.
There’s two hours you’ll never get back again!
Nice Blog! it is really helpful for the audience.
Thanks for sharing it.
I’m looking for attorney that will challenge my financial advisor and guardian life insurance for LEAP and then selling me a lie in my Whole life 99 life insurance policy
I wish you luck – I’ve written about LEAP, Bank on Yourself, and others for many years and wish the practices weren’t legal:
http://daretobedull.com/wp-content/uploads/2014/01/Bad-Books.pdf
I think for the most part that insurance regulators exist to protect the industry.
Sorry to be a downer in the beginning of the new year!
Allan
What are you hoping to get out of the lawsuit/legal shenanigans?
I appreciate this article and your honesty. Because that’s what I thought I was getting when I was working with this Financial Advisor but it was just him trying to dig himself out of his financial mess with my family’s money. Only money and it can be replaced but this scam and the life insurance companies policy of hiring everyone and anyone to sell a few policies to friends and family and then abandoning them must be exposed.
Force insurance companies to do their fiduciary responsibility
I don’t think insurance companies HAVE a fiduciary responsibility!
I appreciate this article and your honesty. Because that’s what I thought I was getting when I was working with this Financial Advisor but it was just him trying to dig himself out of his financial mess with my family’s money. Only money and it can be replaced but this scam and the life insurance companies policy of hiring everyone and anyone to sell a few policies to friends and family and then abandoning them must be exposed.
Insurance agents aren’t fiduciaries but I don’t think that matters much. I’ve seen CFP’s sell insurance products taking commissions and I’m going percentage of assets. In one case, the client was paying 5.29% per year. Both the CFP board and regulators were fine with it. Luckily, we got the insurance company and broker dealer to settle without an attorney.
It’s illegal to sell you a rock for a dollar and tell you it will make you live longer. But it’s perfectly fine to take big money making false promises.
Perhaps the only thing politicians can agree on is to protect the industry since it contributes so much to both parties.
http://strategicmp.net/agent-loses-license-using-leap/
Looking for arbitration or settle out of court for 20% loss
Not sure what you are asking me ? I’m just an investor that was vulnerable and gullible to fall for a financial representative using leap. More than that disappointed in the Whole Life 99 from Guardian Life Insurance Company not delivering on company dividends that are stated as 5.85% but in the small print receive 3.95%. Seeking an attorney who wants to take my case and possibly class action and put an end to this double talk and force insurance company to stop unethical practices.
……… so yes you have my permission to use anything from my posts but none of the content is mine except my ramblings.
It was a spam post trying to get people to click on its link. I’ve deleted it.
As an advisor, I once attended a two hour continuing education session entitled “how to sell insurance products without being sued.” It was two hours going over making sure the client has signed a document (standard for whole life, annuities, variable life, etc) saying the client read everything and had all of their questions answered by the advisor.
I admire you wanting to stop these things. I made things very uncomfortable for the University of Pennsylvania’s Wharton School of Business when LEAP was claiming they were endorsed by a professor and the school. The best I have done is write about this stuff.
Do I have any reason to be concerned since I click on it ?
Probably not. Generally you have to download stuff to get in trouble. It looked like just someone trying to get traffic to their site.
Always seems that those with negative experiences are more likely to post than those with positive (much like patient reviews). My two cents: I have been a Larson client for 8 years, since residency, and have found the service to be transparent and useful. We discussed VUL in such excruciating detail that it required a powerpoint presentation, and this was prior to the lawsuit As hard as they are to really “get”, my adviser made me understand how they work. Not a good fit for our situation, and there was no pressure to buy one. While the lawsuit seems to point to a less than optimal VUL product, its hard to empathize with the physician that suddenly found the life-long commitment and underwater phase to be a burden, unless they were truly shanghaied into it. Advisers vary greatly, and mine may be more competent than some, or have a stronger moral compass.
As I become progressively more financially literate the question of yield vs cost for any adviser keeps coming up, but two experiences have kept me with them: (1) my med school loans were consolidated at a time of higher interest rates, and the early advice to refinance through SoFi saved close to $40,000 on the total payment; I would not have found that service on my own, at least not for a while. (2) when negotiating my contract for the 2nd time, they were able to provide comparison data from actual contracts for physicians in my region, my specialty, and experience level, which was invaluable, far more useful than MGMA data. As my financial questions get more savvy, so do their answers, and the cost structure remains worth the additional advice and education provided.
I hope your experience was more the norm than the other experiences mentioned by the less satisfied clients.
If you feel the value exceeds the cost, than stick with them. But I wouldn’t justify CURRENT costs based on PAST value. You already paid for that. That’s one of the issues with an AUM fee. Cost keeps going up and usually value keeps going down.
It’s more like the intermittent reinforcement of gambling–the assumption that past value will translate into future value in an as-yet unidentified way. Between the Personal Capital app for tracking and the wealth of useful finance blogs and books I now have, the actual advising is becoming less useful, but it is nice to have an expert on call, one that has proven trust so far. Baby steps.