Monday, July 29, 2019

No. 324: LEAP Revisited

In No. 322 (July 12, 2019), I discussed Pamela Yellen's "Bank-on-Yourself" system. In response I received many comments from readers. Some mentioned other "Be Your Own Banker" systems, some mentioned the A. L. Williams (now Primerica) organization, and some mentioned the "Lifetime Economic Acceleration Process" (LEAP). One reader shared with me a 2016 order from the Ohio Department of Insurance revoking the license of an Ohio agent who had used the LEAP system. When I looked into it, I discovered that Guardian Life Insurance Company of America had filed a lawsuit against the same Ohio agent. Here I discuss the Ohio order, the Guardian lawsuit, and my previous writings about LEAP.

The Ohio Order
On April 28, 2016, Mary Taylor, director of the Ohio Department of Insurance at the time, issued an order revoking the insurance agent's license of Brian S. Willms. Here, with citations omitted, are three of the 19 findings:
6. The Respondent [Willms] is an advocate of the whole life sales strategy known as Life Economic Acceleration Process (commonly referred to as "LEAP"). The first step in the LEAP process is to determine the "appropriate" amount of whole life insurance the customer needs so they are protected to full economic value of their life. LEAP is not accepted as a mainstream life insurance concept in the industry.
7. LEAP opposes maintaining a growing equity in real estate, opposes 529 Plan investments, rejects the value of compound interest, recommends stopping of payments into 401(k), and over time cashing out ("paying down") all brokerage accounts and other investments.
8. Respondent testified that LEAP requires a number of assumptions and calculations and financial analysis. Respondent testified "whatever we do has to increase wealth, reduce risk, create no additional out-of-pocket outlay for the client. It has to protect the client better, and if we can't prove it using math and science, we don't do it, period."
Willms appealed the order to a state court in Ohio. On October 5, 2018, Judge Stephen L. McIntosh affirmed the order. Here, with citations omitted, are the two concluding paragraphs:
The State of Ohio has a right to ensure that insurance agents are properly engaged in the business of insurance. The business of insurance is one of public interest, and therefore the State has an interest in regulating the industry. Hence, statutes designed to regulate the business of insurance should be liberally construed to effect the purpose to be served and to prevent and correct evils growing out of the conduct of such business. The purpose of R.C. 3905.14(B) is to grant the Ohio Department of Insurance the ability to suspend or revoke the licenses of those who are not properly engaged in the business of insurance.
Having considered the record ... the Court finds that the Order ... revoking [Willms'] resident insurance agent license, is supported by reliable, probative, and substantial evidence and is in accordance with law. The Order is therefore AFFIRMED.
Those interested should read the order and the affirmation. They are in the complimentary package offered at the end of this post.

The Guardian Lawsuit
On January 22, 2015, Guardian filed a lawsuit in federal court against Willms Financial Network, LLC (WFN) and Willms. The case was assigned to U.S. District Judge John G. Koeltl and Magistrate Judge James L. Cott. On April 8, 2015, Guardian filed an amended complaint, which is in the complimentary package offered at the end of this post.

Guardian said that, from February 2002 and continuing until January 2005, Willms was career development manager in Guardian's central Ohio agency in Columbus. From February 2005 until October 2010, WFN was corporate general agent and Willms was general agent in the central Ohio agency. From October 2010, Willms was agency supervisor in the central Ohio agency.

Over the years, the defendants entered into interest-bearing promissory notes and personal notes with Guardian. In October 2010 Guardian terminated its relationship with the defendants. By December 2014 the defendants' interest-bearing indebtedness to Guardian was about $445,000. Guardian asked the court to enter judgment against the defendants in that amount, plus post-judgment interest and costs.

In February 2017 Willms filed a petition for Chapter 7 bankruptcy in the U.S. Bankruptcy Court for the Southern District of Ohio. In June 2017 WFN filed a petition for Chapter 7 bankruptcy. In December 2017 the Guardian lawsuit was stayed. In April 2018 the bankruptcy court closed the Chapter 7 proceedings. On April 24, 2018, Judge Koeltl issued an order dismissing with prejudice (permanently) Guardian's claims against Willms on consent of the parties, and referred Guardian's claims against WFN to Magistrate Judge Cott to conduct an inquest into damages.

On May 21, 2018, Guardian filed a statement of damages, and on September 21, 2018 filed a modified statement of damages. In the latter, Guardian sought damages of about $568,000 for loan debt and about $1.4 million for amounts paid by Guardian to settle eight customer complaints, for a total of about $1.99 million.

On December 19, 2018, Magistrate Judge Cott recommended that Guardian be awarded damages of about $568,000 for loan debt, and that Guardian receive no damages for the settlement of customer complaints. At the end of a discussion of the customer settlements, here, with citations omitted, is a summary of why Magistrate Judge Cott denied damages for the settlement of customer complaints:
In sum, the Court lacks confidence in Guardian's submissions in light of these unsupported and unexplained requests for damages. The Court has already provided an additional opportunity for Guardian to supplement its inquest submission, and explicitly requested additional evidence, authorities, and legal arguments. Nonetheless, Guardian has still failed to substantiate its damages with reasonable certainty. Accordingly, on this record the Court should not award any damages for the customer complaint settlement debt.
On January 22, 2019, Judge Koeltl adopted Magistrate Judge Cott's recommendations, entered judgment for Guardian in the amount of $568,000, and closed the case. The next day Judge Koeltl entered a default judgment in favor of Guardian and against WFN in the amount of $568,000. Magistrate Judge Cott's recommendations are in the complimentary package offered at the end of this post. (See Guardian v. WFN, U.S. District Court, Southern District of New York, Case No. 1:15-cv-461.)

On July 14, 2019, I wrote to Guardian asking whether LEAP is currently affiliated with Guardian, and if so, for information about the relationship. I received no reply.

LEAP and the Forum
I published The Insurance Forum for 40 years, from January 1974 through December 2013. Articles about LEAP appeared in the August 2001, October 2001, December 2001, April 2002, June 2002, July 2002, August 2002, October 2002, November 2002, January 2003, and March 2003 issues. Those issues are available for purchase on our website at

Among the topics in the Forum articles are descriptions of LEAP, my perceptions of LEAP's shortcomings, the "maximization" technique under which the LEAP agent tries to sell the maximum amount of whole life the insurance company will issue on the life of the client, the LEAP "moves" involving liquidation or pledging of all the client's other assets, LEAP's comments on my articles, my unsuccessful efforts to obtain information directly from LEAP, LEAP and the Insurance Marketplace Standards Association, LEAP and Guardian Life, LEAP and John Hancock, LEAP and New York Life, LEAP and Northwestern Mutual, LEAP and Professor Solomon S. Huebner, LEAP and the Wharton School, and "From the Mailbag" comments from LEAP supporters and critics.

In the December 2001 issue, I offered a package containing my correspondence with LEAP. The package is not available because I discarded it some time ago, along with my other LEAP material. I had thought the March 2003 article was my last about LEAP.

LEAP and Penn Mutual
Several years ago I learned that LEAP had become an affiliate of Penn Mutual Life Insurance Company. I did not report that development. On July 15, 2019, I wrote to Penn Mutual asking whether LEAP is still an affiliate, and if so, for information about the relationship. I received no reply.

General Observations
The LEAP and Yellen systems have similarities. Both involve heavy use of whole life insurance policies. Both disparage all other methods of wealth accumulation. Both use assumptions of questionable validity. Both obscure the details about how the systems are supposed to work.

The recent developments regarding LEAP caught me by surprise and prompted me to prepare this blog post. The developments are a reminder of the long-term nature of the life insurance business and the long-term consequences of questionable activities in the business.

Available Material
I am offering a complimentary 74-page PDF consisting of the Ohio order (7 pages), the Ohio affirmation (26 pages), the Guardian amended complaint (19 pages), and the Cott recommendations (22 pages). Email and ask for the July 2019 LEAP package.