Nearly six years after an annuity issuer first allegedly raised concerns with a midsize wealth manager about a representative using a variation of the “infinite banking” life insurance strategy, the firm may have put the case in the rearview mirror.
On April 30, O.N. Equity Sales
Wesselt has paid less than $60,000 in contributions toward the many settlements, BrokerCheck shows. His strategy called for clients to liquidate their 401(k) or IRAs in order to purchase variable annuities, then make early and large withdrawals toward either life insurance premiums or one-time expenses, FINRA says. At his direction, the clients who purchased life insurance used the policies as collateral for loans under the “infinite banking” strategy, the regulators say.
“Onesco's reviewing principals were aware that [Wesselt] was recommending variable annuities, but they were not made aware of the other components of [his] recommended strategy,” the settlement states. “In fact, no one at the firm conducted a suitability analysis of [Wesselt’s] recommended investment strategy as a whole.”
Between March 2014 and September 2017, more than 75 clients purchased unsuitable variable annuities, according to FINRA. The firm received more than $732,000 in gross commissions, Wesselt got $686,000 and the clients incurred more than $371,000 in surrender charges plus tax withholding and penalties, Onesco and Wesselt’s FINRA cases show. The settlement includes a censure, restitution of $1 million for 76 clients and a fine of $275,000.
O.N. Equity Sales parent firm Ohio National has its own unconnected, long-brewing legal saga
Representatives for SA Stone Wealth Management, where Wesselt was affiliated from 2002 to 2014 under its previous name of Sterne Agee Financial Services, didn’t respond to requests for comment. Wesselt’s practice was located in the Philadelphia suburb of Collegeville, Pennsylvania, according to his detailed BrokerCheck file.
FINRA
The attorney who represented Wesselt before FINRA declined to comment on the case. His current attorney didn’t respond to requests for comment. Wesselt has previously denied any wrongdoing in BrokerCheck disclosures about the client arbitration settlements.
“Agent categorically denies any unsuitable recommendations,” according to comments included in the disclosure of a $12,000 settlement in November 2019. “The issue in question is whole life insurance. Nothing was done improper and agent would defend vigorously. Agent believes this is frivolous and nothing more than someone trying to grab money in an unscrupulous way.”
Backers of the
Wesselt used an “X, or bonus share class” of variable annuities to carry out his version of the strategy, according to FINRA investigators. The products include a cash bonus that get reduced by early withdrawals, and they usually have the longest surrender periods of any variable annuities and higher mortality and other expense fees than other share classes, FINRA says.
The strategy had a disastrous impact on some of Wesselt’s clients, according to the regulator. One client in her 40s has $10,000 left in an annuity that was initially worth $220,000 after paying the life insurance premiums, surrender fees of $11,998 and tax withholding of $71,564, the case against Wesselt states. Another client in her 50s saw her annuity’s value decline by 85% in a week as she paid the premiums and $8,180 in surrender charges after taking out a loan.
Onesco could have recognized the warning signs and should have been able to “conduct a reasonable investigation” in response to issuer’s concerns about the transactions, FINRA says.
“Onesco’s procedures recognized that the short-term surrender of a variable annuity is a red flag,” the settlement states. “On three occasions, variable annuity issuers contacted Onesco or its parent company, and raised concerns about the surrender charges being incurred by [Wesselt’s] customers.”
In response to the first red flag from an issuer in September 2015, Onesco “accepted [Wesselt’s] explanation for the withdrawals, notwithstanding that many of those explanations were inaccurate, without verifying these explanations or reviewing the suitability of [his] ‘building your own bank’ strategy,” according to the document.
The firm failed to take action after two other warnings in the two following years, according to FINRA. In addition, the firm recognized Wesselt as its top producer in variable annuities in 2016 and one of its overall most productive reps, FINRA states. Wesselt was affiliated with Onesco from March 2014 to September 2017, according to BrokerCheck. Arbitrators denied three out of the 19 cases filed by former clients, and one $60,000 claim is still pending.
The regulator’s case against him also alleges that he instructed clients to sign blank or partially completed documents such as new account agreements and variable annuity withdrawal requests. The second of the six firms he was affiliated with over his 28-year financial services career, W.S. Griffith, discharged him in 1997, citing allegations he signed a document with a client’s signature, BrokerCheck shows.
Prior to the FINRA settlement, Onesco completed an overhaul aimed at ensuring significantly greater scrutiny of the use of distributions from variable annuities to buy life insurance policies.
In August 2018, the firm issued an alert to its more than 750 reps in 330 offices “identifying the conditions that must be met in order to recommend a distribution from a variable annuity with the intent of funding a life insurance policy,” according to a corrective action statement included in the letter of acceptance, waiver and consent.
Onesco also introduced new client disclosures, a new “best interest” documentation form and changed its compliance manuals and procedures, the document states.
“The firm has determined that the systematic liquidation of variable annuities to fund life insurance was isolated to a single representative and is not widespread throughout the firm,” the corrective action statement says.
