Morgan Stanley to Pay More than $7 Million
There are important lessons to be learned by those who sell financial products from yesterday’s FINRA News Release announcing that Morgan Stanley is ordered to pay over $7 Million in fines and restitution to clients. Here are the main points:
a) Representatives made recommendations based on unrealistically high projections
b) Morgan Stanley did not properly supervise their field force
People lost their jobs, the firm got bad press, and must pay a hefty fine. Why? Representatives promised more than they could reasonably deliver.
Each day I talk to agents who market fixed indexed annuities on the phone. Some want to illustrate their products at 6%, or even 8% interest. They don’t understand that these rates are virtually impossible to achieve when the caps for indexed annuity products range from 6.50% to 9.40%. See the Index Annuity Product Comparison spreadsheet that I developed to help educate these agents.
The above FINRA News Release is a reminder that customers only complain when they feel like they have been hurt financially or when their expectations have not been realized. If you sell Fixed Indexed Annuities I offer the following suggestions:
a) Always show the guaranteed values, and put your emphasis there
b) Always explain the tax benefits that annuities may offer
c) Sell at least two annuities – one with a six year or shorter surrender charge so that your customer will have adequate liquidity if their situation changes in the future or if they have an emergency
d) When discussing the potential values, explain that the primary purpose of Indexed Annuities is to prevent loss, not to create large gains
e) When illustrating a hypothetical interest rate for Indexed Annuities, use a maximum of 5%, but half the cap rate is good rule of thumb.
Some agents disagree strongly with the above opinion. Examine the Index Annuity Product Comparison spreadsheet closely and you will see that I am right.
Remember annuities provide strong, after-tax values. Here is an illustration that compares a $100,000 Jumbo CD earning 3.73% interest with two index annuities, one illustrated as earning a 1.00% return and the other illustrated at a 3.00% return.
The main point: Be conservative with your promises and projections. This will keep you out of trouble, and if your products exceed your client’s expectations, you will have happy clients.