Thursday, November 14, 2013

No. 8: More on the Reversal of the Neasham Conviction

In No. 6, I discussed the reversal of the conviction of Glenn Neasham, a California agent who sold an Allianz annuity to Fran Schuber in 2008, just before her 84th birthday. An important issue was whether Schuber was suffering from dementia at the time of the sale. A reader expressed some thoughts about my posting, and we engaged in further correspondence. The exchange prompts me to elaborate on three points.

The $14,000 Commission
The first point relates to Neasham's $14,000 commission, which I view as an appropriation of Schuber's funds to Neasham's use. The reader asked whether I am opposed to commissions. I said I am not. I have often said commissions are essential in situations where financial services are sold rather than bought. The consumer's tendency is to procrastinate, and someone must perform what I call the "anti-procrastination function." A person has to be paid to perform that function, and commissions are a reasonable form of compensation. I have often said many people die without wills because no one is paid to perform the anti-procrastination function.

I failed to make sufficiently clear in my previous posting that the annuity in question was not a single-premium annuity, but rather a flexible-premium annuity in which the first premium was large and no further premiums were contemplated. The first-year commission rate on a flexible-premium annuity is significantly higher than the commission rate on a single-premium annuity. In other words, I think the annuity sold in this case generated an excessive commission.

Jochim's Financial Interest
The second point relates to the financial interest of Louis Jochim, Schuber's 82-year-old live-in boyfriend, who precipitated the sale by bringing Schuber to Neasham's office. The reader said the question of Jochim's financial interest in the sale had nothing to do with Neasham. In response, I said it had everything to do with Neasham. In my opinion, the purpose of the sale was to allow Jochim--rather than Schuber's son Ted--to take eventual control of Schuber's property.

As described in my June 2012 article, Jochim's plan was thwarted. After Neasham's conviction, and after Allianz refunded the entire annuity premium to Schuber with interest, Ted obtained a court order. It designated Ted the conservator of Schuber's person and property. Jochim moved out of Schuber's house, and Ted moved her to the memory loss unit of an assisted living facility.

The Suitability Issue
The third point relates to suitability of the annuity. As I said in No. 6, the fact that the California Department of Insurance had approved the annuity contract form for sale to persons up to age 85 does not mean it is necessarily suitable. The reader said he sees no problem with an annuity that provides a period certain. In my view, when a person selects an annuity consisting of a period certain and a deferred life annuity, the arrangement would not be suitable for a person in poor health because the portion of the funds going to the purchase of the deferred life annuity would be forfeited entirely if the person dies during the period certain.