Monday, December 15, 2014

No. 76: Daniel Stallings and an Update on the Case of Mrs. X

The March 2012 and January 2013 issues of The Insurance Forum contain articles about Daniel H. W. Stallings (Muncie, IN), who replaced life insurance policies and annuities owned by Mrs. X. Here I discuss some matters not mentioned in the Forum articles.

The replacements occurred in the fall of 2010. At the time, Mrs. X was aged 81, was living in her home in Muncie, was the widow of a longtime member of the Ball State University faculty, was wearing an Exelon patch as medication for marked cognitive impairment, was a member of the Ball State Federal Credit Union, and had met Stallings through his position as "Our Expert" at the credit union. Stallings at the time was a registered representative of New England Securities, Inc. (a unit of MetLife, Inc.) through Financial Partners Group (Indianapolis).

Mrs. X owned two life insurance policies issued many years earlier on a standard basis by The Northwestern Mutual Life Insurance Company. One was a paid-up policy that was paying significant dividends. The other was a premium-paying policy on which the dividend each year was substantially larger than the annual premium. Stallings replaced the two policies with a policy issued by Massachusetts Mutual Life Insurance Company on a Table D substandard basis, with the rating apparently caused by Mrs. X's cognitive impairment. Mrs. X signed a "Letter of Instruction" (often called a "CYA letter") to Massachusetts Mutual in which she said she understood the effect of replacing the Northwestern Mutual policies and expressed her desire to proceed with the application to Massachusetts Mutual for the replacement policy. Later she had no recollection of the letter.

Mrs. X also owned several fixed annuities and variable annuities. They were issued many years earlier by The Teachers Insurance and Annuity Association of America, College Retirement Equities Fund, and Northwestern Mutual. Stallings replaced the annuities with two variable annuities issued by Metropolitan Life Insurance Company.

In the first Forum article about the case, I expressed the opinion that the replacements were not justified, and expressed hope that the companies would restore Mrs. X to her original financial position. In the second Forum article, I reported that Northwestern Mutual and Massachusetts Mutual had restored her to her original financial position with regard to the life insurance. I do not know what happened with regard to the annuities.

FINRA Involvement
In October 2011, Mrs. X's family filed a written complaint, which New England Securities reported to the Financial Industry Regulatory Authority (FINRA). The complaint related only to the annuity aspect of the case. According to FINRA's BrokerCheck reports on Stallings and Bryan Todd Baker (Indianapolis), here is the allegation:
Customer alleged that the representative's recommendation to transfer funds from contracts with no surrender charges into two new variable annuities with surrender charges, in September 2010, was not appropriate. No specific compensatory damages were alleged.
The complaint was settled in August 2012. The settlement amount was $3,000. Stallings (aka Dana Harris Wiltsey Stallings, CRD #4942231) paid $750, and Baker (CRD #4410211) paid $750. The reports do not say who paid the other $1,500; it may have been New England Securities.

Stallings was associated with New England Securities from July 2006 to August 2012. Since then he has been associated with American Portfolios Advisors, Inc. (Holbrook, NY).

The Credit Union
I wrote to Randy Glassburn, president and chief executive officer of the Ball State Federal Credit Union, and inquired about the situation. I enclosed the two Forum articles and mentioned the FINRA BrokerCheck reports on Stallings and Baker. In response, Glassburn said:
We had a relationship with Financial Partners Group, and over the course of time they had become much more sales focused, and much less service focused. Not the service base we wanted. In the process of waiting for our contractual obligations to expire with them, Daniel Stallings exited his relationship with them. And after we terminated our relationship with them, we brought Daniel back as an independent representative of American Portfolios. FINRA found no fault in your Mrs. X situation, and my members love working with Daniel. He takes a genuine member focused approach to each member he works with, and we are totally satisfied with that relationship.
The Indiana Department
In my first article about the case, I said Mrs. X's family filed a complaint with the Indiana Department of Insurance. Two consumer consultants in the Department dismissed the complaint in separate but identical letters.

Recently I wrote to the Department asking whether it had taken any disciplinary action in the case. In response, Doug Webber, chief of staff in the Department, said that no disciplinary action was taken, and that the Department was instrumental in getting the parties together to arrange for reinstatement of the original life insurance policies. He also said the Department concluded that the matter should be closed.

The NAIFA Chapter
The East Central Indiana (Muncie) Chapter of the National Association of Insurance and Financial Advisers (NAIFA) recently ran a newspaper advertisement showing the full text of the NAIFA Code of Ethics and photographs of the officers, directors, and several other members of the chapter. Stallings was identified as president of the chapter, and Katy M. Sargent-Combs was identified as president-elect.

NAIFA has published a booklet entitled "Keep It Legal," which among other matters describes the procedure for filing complaints against NAIFA members. The booklet says that complaints are handled at the chapter level, and describes in detail the procedures (including the hearing process) to be used in the investigation of a complaint. The possible results are dismissal of the complaint, a letter of reprimand, suspension of membership until a specified date, and revocation of membership. A complaint may be filed by "any person," but there is no mention of whether such a person who is outside NAIFA is notified of the result.

I sent a complaint by regular mail to Sargent-Combs. I expressed the belief that Stallings had engaged in conduct unbecoming a member of NAIFA and in violation of its Code of Ethics. I enclosed the two Forum articles and asked her to acknowledge receipt of the complaint.

Two weeks later, having received no acknowledgement, I sent a follow-up by regular mail again requesting acknowledgement. A week later, having received no acknowledgement, I sent an e-mail follow-up. Within minutes came this reply: "I have received both your letters and your e-mail and we as a board have no comment." I sent another e-mail asking: "Will you have a comment for me at some future date?" I received no further reply. I may never learn the result of the investigation, or even whether an investigation was conducted.

American Portfolios
Recently I wrote to Lon T. Dolber, president of American Portfolios. I enclosed the two Forum articles and mentioned the FINRA BrokerCheck reports on Stallings and Baker. I asked whether American Portfolios was aware of the case of Mrs. X when Stallings joined the firm. In response, Frank A. Tauches, Jr., executive vice president and general counsel, said:
Mr. Stallings disclosed the matter regarding "Mrs. X" prior to joining American Portfolios. Our Compliance Department, which reports to me, reviewed the matter. This matter was resolved as reported in FINRA's Broker Check during the same month that Mr. Stallings joined American Portfolios. Mr. Stallings remains a well-respected member of our firm who has had no customer complaints nor any regulatory issues since he joined us. I trust that this satisfies your inquiry.
General Observations
When I learned about the case of Mrs. X, I believed that the replacements were not justified, and that the life insurance aspect of the case was one of the most egregious replacements I had ever seen. In my first article about the case, I expressed the belief that commissions motivated the replacements, and that the transactions therefore involved churning. I think it is unconscionable that no significant punishment was imposed in the case.

I am offering a complimentary five-page PDF containing the two Forum articles. Send an e-mail to and ask for the articles about the case of Mrs. X.