FSRA initiates enforcement action against MGA

In its notice of proposal to make the compliance order, the FSRA explained that Greatway requires the agents it works with to complete mandatory training, which includes modules on legal requirements such as anti-money laundering practices. But the only product training required of agents is to sell universal life (UL) policies under the strategy of an “insured retirement plan” (IRP) – policies that the regulator has called “overfunded.”

As further pointed out by the FSRA, an IRP is a complex financial strategy which allows consumers to obtain life insurance and potentially supplement retirement income using a combined investment/income approach. Consumers that purchase such a product will have to pay more into the contract – on top of their life insurance – so that the amount accumulates. This accumulated savings can then be accessed in later stages by withdrawing money from the contract or borrowing against the cash value of the policy.

But the success of an IRP strategy is dependent on continued and retained contributions, the FSRA mentioned, as well as borrowing eligibility and permitted tax deferrals, among other factors. It was also noted that the cost of insurance premiums reduces the amount of money that insureds can “save” through the policy, and the cost of insurance would certainly increase over time as the insured ages.

FSRA added that an IRP strategy is usually considered for higher net-worth individuals who require tax-effective strategies and can afford to make regular contributions. After a review, the regulator determined that Greatway’s training teaches agents to sell the overfunded UL policy using an IRP strategy to all customers – regardless of their financial circumstances – misrepresenting the UL policy and IRP strategy as “savings” instead of insurance. FSRA also accused Greatway of training agents to avoid communicating the risks associated with such UL products.