In 2010, Citigroup decided to sell what was widely regarded as one of its dodgiest operations.
The struggling Wall Street titan was trying to streamline its management structure and upgrade its reputation after a massive government bailout, and one line of business its executives could live without was Primerica.
Primerica, now an independent company, is a financial services operation modeled on multi-level marketing enterprises like Amway, Nu Skin and Herbalife. Unlike traditional retirement and insurance firms that employ a relatively small number of highly paid financial professionals, Primerica had more than 98,000 people enlisted in its sales force last year, recruited through feel-good videos and pitches to the family and friends of existing salespeople.
If you're willing to work hard enough, Primerica tells prospective entrepreneurs, you can run your own successful business selling insurance or retirement packages. Primerica agents get paid a commission on each sale, and — just like Amway and Herbalife — also earn commissions for sales their recruits make. And a commission on their recruits' recruits, and their recruits' recruits recruits. And so on.
And like other multi-level marketing operations, Primerica holds huge, splashy motivational conferences for its sales team, where executives fete top earners amid fireworks and flowers. As with Herbalife, Nu Skin and similar platforms, the pitch to prospective Primericans is a vague, highly emotional appeal that suggests not only financial rewards, but the revitalization of a lifestyle. In one promotional video, Rob Cooper of Fort Worth, Texas, encourages his audience not to settle for a mediocre life like everybody else does.
One of the greatest thing[s] Primerica has to offer is they encourage goals, they encourage dreams, Cooper says. And you really know — man, if you're willing to go out there and work hard, then you can actually achieve everything you ever wanted to achieve.
The same life. The same boring routine, says Houston's David Farmer in another video. I didn't want that life … I saw Primerica as my way to take back control of my life.
I always wanted to be somebody, says Jeff Fieldstad of Las Vegas in another. I always wanted to do something great.
Of course, for most people, it doesn't quite work out that way. More than 190,000 new recruits paid a fee to sign up for Primerica in 2014, according to the company's annual report with the Securities and Exchange Commission. But Primerica only boosted its total licensed sales force by 3,700 that year, and each member of the sales team earned an average of $6,030.
Senate Republicans are apparently sold. The GOP has called on Primerica President Peter Schneider to testify against a new Obama administration retirement security proposal at a Tuesday hearing before the Senate Committee on Health, Education Labor and Pensions.
The Department of Labor rule would impose a fiduciary duty on investment advisers, requiring them to act in the best interests of their clients. It would bar account managers from steering people into financial products that maximize benefits for investment specialists, rather than retirees. The Obama administration calculates that Americans lose $17 billion a year to hidden fees and conflicted investment advice.
In other words, the rule is designed to prevent exactly what 238 Florida workers said Primerica did to them in the years leading up to the financial crisis — steer them into inappropriate financial products for the personal financial gain of the sales team.
In 2012, lawsuits began pouring in, alleging that Primerica reps had convinced Florida firefighters, teachers and other public workers to invest in inappropriate retirement products. Even though the workers were near retirement, Primerica representatives encouraged them to ditch their government pension plans for much riskier government 401k accounts, which do not guarantee a minimum monthly payout in retirement. Dumping a pension plan for a 401k on the verge of retirement is frowned upon in the investment advice world. It needlessly jeopardizes retirement security, while offering little potential benefit.
But the scheme posed major potential profits for Primerica's sales reps. Once these workers retired and moved out of their government plans, Primerica agents stood to profit from managing their retirement assets. Had they stayed in the pension programs, retirees would have simply collected their monthly payments, leaving nothing for Primerica to manage, and no commissions for Primerica agents to harvest. In January 2014, Primerica set aside $15.4 million to settle allegations involving 238 such cases.
Primerica told HuffPost that Florida state regulators did not object to its agents' actions. The company also said that the retirees it settled with never actually signed up for Primerica products after taking the company's investment advice. Indeed, the workers were so steamed by the lousy advice that they did not ultimately ask Primerica to manage their now-diminished assets in retirement.
It's not terribly shocking that a financial company run like Amway would run into trouble. But it is perhaps surprising that Senate Republicans seem to think Primerica makes for a sympathetic ally in their public campaign against a financial reform proposed by President Barack Obama.
The unintended consequences of the DOL's proposed rule will be to make it more difficult for these households to receive desperately needed retirement guidance, Primerica told HuffPost in a written statement.
The GOP's disdain for the fiduciary duty rule is clear from the hearing's title: Restricting Advice and Education: DOL’s Unworkable Investment Proposal for American Families and Retirees. Unworkable, apparently, because Americans might miss out on the opportunity to receive investment advice from someone looking to cash in on a get-rich-quick operation.
Reported by HuffingtonPost.com
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