Broker-dealers and financial advisers are taking action against The Hartford Financial Services Group Inc. in response to a letter the firm sent to their clients that entices them to swap their variable annuities for a replacement — one that advisers say actually strips away generous guarantees.
“We instructed them [The Hartford] to cease and desist,” said Scott Stolz, president of Raymond James Insurance Group. Mr. Stolz said he had spoken with executives at the insurer this week after an adviser notified the broker-dealer about the letter, which was sent to clients Aug. 23 and obtained by InvestmentNews.
“The [Raymond James] home office wasn't aware of the fact that these mailings went out, and we called [The Hartford] to inquire on what was going on,” Mr. Stolz said.
Executives at Commonwealth Financial Network also contacted representatives at The Hartford this week to express their frustration about the letters, according to Commonwealth's compliance chief, Paul Tolley.
“We told them what we expect from a partner,” said Mr. Tolley. “We told them that we want any future communications about the internal exchange program suppressed with respect to Commonwealth advisers and their clients.”
A similar letter was sent simultaneously to the clients' advisers, along with a list of clients who would be receiving it.
The letter has infuriated advisers, who said that that they weren't given any advanced warning and didn't get a chance to discuss the letter with their clients. (
For more details about the 'exchange' letter,
click here)
What's worse is that the VA exchange is a raw deal for most clients, who would give up some retirement income guaranteed under the old contract.
“Clients don't understand: They get this letter that says this exchange is good, and they want to do it,” said Kevin VanDyke, president of Bloomfield Hills Financial. He has 30 Hartford contracts on his books, and all of those clients received the letter.
“If what the advisers say is true, then this is an unfair and deceptive practice: You can't tell people that this is more favorable when in fact the client is losing some valuable benefits,” said consumer advocate Birny Birnbaum, executive director of the Center for Economic Justice.
“Basically companies made promises that were too costly for them to keep,” he added. “So I understand why they've stopped selling variable annuities, or why they would like to see if they could move people out of those products.”
Barbara Roper, director of investor protection at the Consumer Federation of America, raised similar concerns. “It's not the worst thing I've ever seen, since it does send them to the financial adviser to determine whether the exchange would be a good deal for them,” she said. “But the wording about ‘new features' being available does imply that this is a better product … If they know they are sending the letter to customers who are better off under their current contract, that's a pretty questionable practice.”
In the letter, The Hartford informed clients of its “Personal Retirement Manager Exchange Program Opportunity,” which would allow them to trade their old contracts for a new variable annuity. The letter said the new annuity had “new features” not available at the time clients purchased their earlier contracts. The letter also said the new VA is available only to those who meet “certain eligibility requirements.”
The Hartford would not provide the number of letters that had been distributed to clients, but noted that the letters to advisers had been delayed.
“Although we received a relatively small number of complaints from advisers,” David Potter, a spokesman for The Hartford, wrote in an e-mail, “we recognize the timing of the communication may have created confusion.”
As a result, many advisers contacted by
InvestmentNews said the letter has forced them to re-evaluate their relationships with The Hartford. They've also been scrambling to notify their broker-dealers of the letters and doing damage control with clients.
“Barring them [The Hartford] being a little more contrite, it will affect our marketing, selling and using Hartford contracts in the future,” said Austin A. Frye, an adviser at Frye Financial Center. “This is a disappointing development.”
(Click here to view more comments from advisers and reps.
[Note: An expanded version of this story will be available on Sept. 6, in both the print edition of
InvestmentNews and on the IN website]
