Annuity Salespeople Are All Honest & Competent Because of Special Licensing

I don't think I have to remind you that this post heading is a MYTH.  What's astonishing with the case below is not so much the jaw-dropping audacity of the crook but the carelessness of his victims.  Here's the story, according to an article by Marlene Y. Satter in ThinkAdvisor.  (See my Dos & Don'ts afterward.)

  Nebaraska Regulator Suspends Omaha Advisor in Annuity Scam

The Nebraska Department of Banking and Finance issued an emergency order against Jerome Bonnett Jr., aka Joe Bonnett, and two of his companies, Bonnett Financial Services Inc., and BWM Advisors LLC of Omaha, revoking Bonnett’s registration as an investment advisor representative and suspending the registration of BWM Advisors LLC for multiple violations of the Securities Act of Nebraska.

In addition, the Nebraska Attorney General’s office, on behalf of NDBF, filed a civil action in Douglas County District Court against Bonnett and his companies alleging violations of the act and misappropriation of client funds. The lawsuit seeks injunctive relief, freezing of assets and the appointment of a receiver.

According to the emergency order, Bonnett had arranged for an annuity for one client, but when the client had attempted to receive payment for the annuity, it developed that there was no such policy and instead Bonnett made a payment to the client from funds he had received from another client [classic Ponzi scheme]

In addition, Bonnett borrowed money from other clients to satisfy his own tax obligations and received numerous checks from other clients for purported sales of various investment products, but had been depositing client checks only to have checks drawn in his own name for withdrawal of funds that were then deposited in his personal accounts and apparently diverted for personal use.

“Based upon the evidence reviewed to date, it appears that Bonnett has borrowed $550,000 from his clients since October 2015, and $500,000 of that debt remains outstanding,” the department said in a statement. “While Bonnett has made $187,602.74 in payments to clients, there remains over $1,350,000 that is unaccounted for.”

How could his victims have avoided  Bonnet's scam?  Here are my suggestions:

• DO a background check at both brokercheck.finra.org and your state's financial regulatory website (here is Oregon's).  Ask your adviser for details of any reported events that show up.
• DON'T ever make investment checks or transfer forms payable to your adviser.  Sure, fees for service are fine.  But not large sums which you are expecting to be reinvested.
• DON'T accept statements produced by your adviser nor mailed from your adviser's address.  Legitimate statements will be issued by verifiable 3rd parties, like Fidelity, Vanguard, American Equity for example.
• DO insist on a contract issued by the company to which you are sending your money.
• DON'T accept statements hand delivered to you by your adviser or his staff.  This could mean they are attempting to circumvent mail fraud statutes.
• DO be suspicious of "annuity" payments directly from your adviser.  These, too, should come from a verifiable 3rd party, i.e. the annuity company from which you received your contract.
• DO take advantage of all the tools available on the Internet.  If you have no computer, smart phone or Internet connection, go to the local library & they'll be happy to help you.
• And finally, to be fair, DO be wary of negative company reviews.  Are they statistically significant?  For example, a couple dozen lousy reviews about a company may be concerning.  Unless they have 500,000 contract holders.

Your Constructive Comments are Welcome!

All Financial Advisers Are Screened by State and Federal Regulators

I hope it isn't getting too redundant for me to remind you gentle readers that the headings of these posts are MYTHs.  This one is no exception.  Sort of.

Depending on who they work for and the kind of work they do, financial advisers are indeed somewhat screened by regulators.  After all, there are education, training & licensing requirements both up front and annually.
But does this mean that you can just trust any licensed "adviser"?  According to a recent article in Financial Advisor (a Financial Times service), the answer is . . .  "no".  The title of one article appearing in today's issue is, "Half the FAs Fired for Misconduct are Rehired in a Year". (by Alex Padalka).  He goes on to say,  "Getting fired over misconduct doesn’t necessarily mean an advisor’s career is over — in fact, almost half of them are back and advising clients within a year of termination, according to a study cited by WealthManagement.com".  In addition, 8% of FINRA registered advisors have a "disclosure event" on their records.  [I would provide both links but both sites are subscription services]  Finally, they found that "some firms specialize in misconduct and cater to unsophisticated consumers".  Amazing.

If I were looking for an adviser* I would want to use every tool available to screen them.  So should you.  In addition to simple Google searches, here are two essential background check sites:

1. BrokerCheck, and
2. The Division of Finance and Corporate Securities (Oregon)

Your Constructive Comments are Welcome!
*You'll note I spell "adviser" ending in "er" while most places you'll see it spelled "or".  The regulators want us to spell it "adviser".  So I do.