help! friend peddling WFG and VUL's

[bright eyed]

Hi everyone, new here, want to thank you in advance for your help.

My dearest friend of over 20 years (since we were kids) has been sucked into the World Financial Group. Her cousin sucked her in and he's attached himself to her side ever since they reconnected (he was overseas for several years). I had talked with her about starting to save for her retirement, she mentioned talking to her cousin who knew "everything" about finance and was going to "show" her how to take advantage of all these "tricks" that wealthy people are only privy to.

She is very very green when it comes to financial info - after i did a little (really very little) research on the VUL's and WFG i was not happy. I sent her all the info and she read it (but with him by her side yapping about why it was wrong). i even sat with him for a mind numbing hour where he lied and backpeddled every time i asked pretty basic questions.

He was pushing the VUL as an investment tool - to take out "tax free" loans that would essentially never be penalized as long as you left a "small" amount in. He was also saying that they invest in "aggressive" funds yielding 20% or more (which my dad said borders on fraud). when i said the stock market only yielded about 10% historically, he started saying yes, well, 10% is the average! and then acted like he would never have said 20% - my friend sat there the whole time.

Anyhow, i had one final discussion with her several months ago - pleading with her to do her own research and saying it would be irresponsible to go and drag friends and family into this stuff if she didn't know what she was talking about. she was upset and broke down saying she just trusted him and didn't think he would "lie" to her. arrrg!

anyhow, i said this is the last time i would bring it up - hoping she'd get over it - but he is like a leach and has stuck to her, meeting with her nearly daily, and now her mother in law is "investing" and many other people in her circle. she's already purchased a policy from him and thinks the "vul" is something to aspire to (barf). (btw my dad has sold life insurance for over 20 years and explained them to me in detail, and all the risks in terms of collapsing etc).

i also think he has discouraged her from investing in her workplace 401k, so she can put more into these funds.

i am very conflicted because i know there is not much i can do to dissuade her - but it is upsetting to know that she and her family are doing these things with their money - none of them are particularly wealthy - which i think is part of the deception of WFG, taking people who know nothing and making them think they are now in the "know."

also, it really is going to affect our friendship - i think it is unethical and am fearful about what will happen to her and her family financially - any advice is appreciated.

 

[REWahoo]

also, it really is going to affect our friendship - i think it is unethical and am fearful about what will happen to her and her family financially - any advice is appreciated.

You are in a no-win situation. Not sure there is anything further you can or should do if you want to stay on good terms with your friend. Best admit some things are beyond your control and, although it's sad to have to bear witness to this train wreck, realize you can't do anything to stop it and will only be run over if you try.

 

[bright eyed]

oooh that's how i feel...no win...

it could be years before she or her friends or fam realize these are bad investments. she isn't around a lot of other people who have serious financial plans, any investing experience etc.

the other hard part is that it is starting to cast a dark shadow on my feelings toward her. she is truly one of my dearest friends from childhood, more like a sister. but i am so alarmed and urked by her choices around these matters.... i am really starting to question if i can just try and "ride it out" and ask her to stop talking about it when it is a huge part of her life.

 

[Brat]

Have you considered telling her that you think that she is making a horrible mistake financially, that is causes you so much pain that when she talks about it your stomach hurts. Ask her, for your sake, not to mention it in your presence.

 

[bright eyed]

yup, yup and yup.

we'd had several minor conversations. then finally i told her this was my final discussion with her about it. that i was extremely concerned with her involvement and we had a several hour conversation.

whatever your feelings about wfg or vul - her cousin makes it all the worse. he is slimy and i wouldn't buy a used coffee mug from him. he was very misleading in his pitch - just gabs and gabs to avoid answering questions directly. he said things like, "my company owns transamerica"- uh excuse me? aegon is the mother corp, which owns transamerica and wfg - isn't that so shady?

she's totally given up her own faculties to his - i asked her why she trusts his intellect and not her own - she admitted she just basically trusted him.

if anyone mentions they are considering buying a house or talks about retirement whatever, she will drag her cousin with her to their house for a 2 hour plus meeting so he can unveil all of his "knowledge". honestly most of them don't know better and i would only hope they do their own research before plunking any money down - but the whole terrible part of their marketing is that it abuses the trust of friends and family. i also think it's terrible to receive a commission for it - it's not a "true" recommendation if you get a kickback for it right - i mean esp to your trusted friends.

if you were going to a stranger, you would have your guard up - but if a "friend" recommends them, you are not as likely to ask as many questions.

in our last in-depth convo - i promised i wouldn't bring it up anymore. she was in tears and didn't understand why i was so "hard on her". well, since then, she brings it because it's what she's doing, we went to so and so's to talk about a mortgage, or "investing" (i use quotes on purpose here). she even said, you would be really good at this, you should do it too! i almost fell down in disbelief - hello?! i usually just don't say anything and change the subject.

but now, i am at the point where, do i just keep my distance, i've also considered just asking her to not bring it up - but then it just seems like our relationship would be so dishonest? our kids are friends too - arrrrg!

 

[DRiP Guy]

but now, i am at the point where, do i just keep my distance

May sound unrelated to you, but at my work, one of the guys I know was a good guy, but with a lot of kids, and an extended family to support, so he was strapped, and somehow got pulled into - Multi Level Marketing. Gack. Heck, I thought those ponzi type schemes like it had kind of died out since people became more educated, but apparently they are alive and well.

Anyway, long story short, he wanted to talk about it and sell it up to everyone he knew, and those who were disinterested (like me) eventually saw him get bitter and aggressive to us, no matter how politely we demurred. Anyone who had the bad judgment to actually try to dissuade him was branded as 'closed minded' and 'willing to be shackled' and it just got worse from there.

To cut to the chase, it rapidly became clear: to deal with this person meant you were going to have to navigate this minefield. Since I had no direct need to interact officially, I chose to let it go. Could I have tried to 'deprogram' or 'convert' them? Yup. But I feel at certain stages of mind control (let's face it, that's what it is), any attempt to intervene STRENGTHENS the resolve they have to resist. Since I was not emotionally attached, it was pretty easy, except to know in the abstract the ruin this person was headed for. And it happened.

Back to your case, since you do not have direct accountability for this persons decisions, I think that unless someone is ready to hear sometimes you just have to make sure they know you care, and that you will be there for them, with only one ground rule -- no discussion of that stuff. If either of you can't abide, tell her the door is closed until this is not a part of her life. Harsh? Maybe. But just maybe if you are one of a few, she will wonder why it has occurred, and eventually straighten out.

 

[bright eyed]

thanks drip guy,

those are the feelings i have, but then i ask myself, am i overreacting? i'm trying to keep perspective - but i feel so strongly about the ethics issues...but we've been friends so long i would be really sad to miss events in each others lives if it comes down to that...i know her intentions are not wrong - but i do think the green eyed devil is clouding her thinking - and she doesn't see it as a conflict of interest to get such serious kickbacks for all the referrals...but i do, especially if she's not aware or disclosing what all the pitfalls are.

her cousin was using a brochure from the company to explain the policies to her (so she could share with friends), not exactly objective materials. when i pointed that out, she said they have to put all the info on there because of "regulations." i said right, the bare minimum, as interpreted by their lawyers and then tweaked by the marketing dept!

 

[Outtahere]

Bright eyed, is there some literature you could show her on how bad this is? Maybe do some research and show her the other side? Things her cousin is not telling her? Cold hard facts in black and white might smarten her up, if not avoiding her and/or the subject is the only thing to do.

 

[FinanceDude]

I got "sucked in" to Primerica back in the late 80's................

MLM companies do a "GREAT JOB" of keeping the cult going, with tons of "rah-rah" meetings and the like............

I personally know of NOONE that has made substantial money on them........and a few who almost ruined their lives "chasing the MLM dream"...............

 

[bright eyed]

i did send her all the stuff i found on both WFG and VUL policies. she saw what i saw.

but - like i said - she is super green and i don't think she can tell head's for tails. the numbers just dance around for her and she basically said she doesn't think her cousin would lead her wrong. and her cousin will just talk and talk and talk until you think he's right (which i have yet to experience him actually being right).

in our last convo about it she did promise to do outside research and i don't think she has done it - so i can call her on that and ask her how she would feel if her mother in law's policy collapses, or she takes out a loan on the policy (in 7 years!) if/when it has a positive profit - and then get taxed because the policy doesn't have enough in it to stay viable etc...wealthy people can throw money into it to keep it afloat, but people who aren't, will just lose the policy and pay taxes on those "tax free" loans he is touting.

maybe now since she's been around all that stuff more - it will be more troubling if she can't answer my questions...in the beginning she didn't know and wanted me to keep asking her cousin - but it was futile because he would just backpeddle and she wouldn't see that he was doing it.

we even saw a suzie orman (i know, not everyone's fav) episode where a guy was asking about one of these policies and that he had started investing in one - and she said just drop the policy now and walk away! my friend just said, oh well, i still think they are a good idea...

i don't think she gets the concept of the high fees and expenses - i would NEVER pay anyone the enormous commission and fees for the tiny insurance coverage you actually get. and she doesn't get the fact that if she isn't investing in her pre-tax 401k, that she's using after-tax money to put into the vul to get a "tax free" loan!!!

 

[brewer12345]

I would let it go. Your friend will soon be paying tuition in the school of experience. Not much you can do about it.

 

[bright eyed]

how do you watch a ship with your best friend on it - and just let it sink? she's the bread winner in the family too, her partner is going to school so they rely on her income - which makes it all the worse... i know it's their lives - i try to think that too - but we come from immigrant families without a lot of help on these types of things...so i guess i feel more responsibility to say something.

but i guess i have.

 

[mickeyd]

Your friend has definitely decided to drink the Kool-Aid that her cousin has prepared and all of your extreme efforts to get her to come to her senses have failed. Rev. Jim Jones would have also made an excellent salesman for WFG also.

My bit of insight is for you to send a letter to your friend, and copies to all of the other folks that are in the process of making her salesman/cousin a wealthy man. The gist of the letter would indicate that she is making a severe mistake that could cripple her financially and you refuse to be a part of it. Your letter is a way to exonerate you in case she later asks why you did not intervene in this sure-fire financial tragedy.

 

[bright eyed]

so people generally are agreeing that this is a seriously bad affiliation and financial advice right?

at times i'm trying to see if i'm overreacting, but my gut says no. i haven't found much of anything to validate any of the company's claims or their wares...

if they were just making poor financial decisions - going into debt, not investing in their retirement, choosing sketchy stocks, maybe i would just mind my own business...but i'm really distracted and upset about this.

at first i was fine if she was just going to waste her time, but now people are putting actual money into these schemes and i'm trying to assess how loud to ring the alarm bell.

one side of me says, hey if they didn't do their own research than it's their bad.

the other side says, they are friends and family of friends, i should warn them?

 

[Jay_Gatsby]

I don't agree that there is nothing you can do. There is something, but it may cost your friendship with her. The statements and other representations her cousin has been making would appear to violate numerous state and federal securities laws. There may be some way that you can anonymously report him. If her cousin were being investigated by federal/state regulatory authorities, I'm sure that would break the spell. Her cousin could always try to claim he's being "framed" by the government, or that there must be a "misunderstanding", but that probably won't help him much.

Here are some websites that might be of interest:

http://www.xwma.org/
http://www.milbergweiss.com/page.aspx?pageid=5301
http://www.annuitytruth.org/article/whocanhelp.htm

 

[samclem]

I like the idea of a written note to everyone, but would recommend that you take a reasoned tone. "I know that several of you have been approached by XXX. I did a little research on this, and here's what I found out . . ." Then, do a side-by-side comparison of a typical case, one using the WFG/UL product and another using vanilla low-cost funds. You'll have to make some assertions that the readers may/may not accept (e.g. nobody can consistently beat the stock market averages, increased returns come from increased risk, etc). Also include the web sites of applicable references for them to review.

Be sure you don't cross the line into libeling the salesman, and try to keep it non-personal. It is not out of place, however, to let your friends know that you stand to make zero dollars if they take your advice,m while Mr Salesman profits to the tune of XX dollars for every $1000 they contribute.

This will take some work on your part, but you are obviously very concerned about this. Lots of folks will respond better to a written note than to a verbal conversation-it takes the emotion out of things. Expect that slicky-boy salesman will follow-up with a verbal reply to your note to all the people you contacted, but that's okay: He'll probably be very reluctant to put anything in writing, and you can continually ask your friends why he won't do that. By the way, don't make things easy for him by listing all the addressees on the note, and don't send it via email.

Don't expect success. You are working against the human desire to believe the best and a well-oiled marketing machine. At least you'll know you did what you could.

 

[Brat]

You should absolutely warn them. The question is how. The biggest scams are those executed by persons with a trust affiliation. Coreligionists come to my mind first. The cousin may be a victim himself, but the first priority is to prevent more damage.

Samclem's suggestion is very good. I would deliver the message in person as well as in writing.

If you are willing to go all out and risk the anger of the friend then hold a "party" and invite only the change makers (leaders) of the family - don't invite the cousin because the family wouldn't want to see him shamed. Put together a packet for each guest. Maybe go your local bookstore and buy a good, but basic, investing book for each invitee. Tell them that their financial security is important to you, that they need to first do nothing until they have read the material you have given them.

After that all you can do is provide tissues.

 

[bright eyed]

thanks samclem and all,

that sounds like a good idea.
part of the problem is that i am very very good at verbal debate and she is not so it's not a fair situation. i think writing it down with comparisons will definitely help.

thanks jay-gatsby for the links, seen the wxma, but not the annuity truth one.

i have been thinking about a group meeting of some sort too, i'd even consider having the cousin there to see how he squirms out of that? but one of you warned against it...but wouldn't it be good for him to be confronted with everyone there so they can see he has no answers?

 

[donheff]

It isn't really the end of the world. She could be a tobacco company lobbyist or something. Tell her you don't want to hear about the bogus investments anymore and get on with your relationship.

 

[Brat]

i have been thinking about a group meeting of some sort too, I'd even consider having the cousin there to see how he squirms out of that? but one of you warned against it...but wouldn't it be good for him to be confronted with everyone there so they can see he has no answers?

Your purpose should be to protect others, not put him down. Don't put them in the middle of a power struggle.

I would encourage them to ask him to give them written material, just as you have. Offer to review the written material so that they will know how to evaluate it. Remind them that if they were in the market for a car they would compare vehicles, maybe talk to a mechanic and read Consumer's Reports. Investments are just as important decisions. [snide me would be tempted to compare the cousin to a car salesman, but they would likely take offense.]

 

[bright eyed]

yes brat, i think that is part of the problem in my approach.

it came down to whether or not she trusts him. i asked her why she doesn't use her own intellect...and she said she trusts him...so i think whatever material she reads will still be colored

but i do think that i have to try and present my information objectively and more dispassionately!

 

[Jay_Gatsby]

yes brat, i think that is part of the problem in my approach.

it came down to whether or not she trusts him. i asked her why she doesn't use her own intellect...and she said she trusts him...so i think whatever material she reads will still be colored

but i do think that i have to try and present my information objectively and more dispassionately!

It sounds like she trusts the cousin more than she trusts Bright Eyed. That's the fundamental problem. The solution, therefore, is getting her to trust Bright Eyed more than the cousin. So how do we do this? Trust is an emotional act, not a logical one. All of the carefully-explained financial strategies in the world won't establish trust, nor will they usually undermine someone's trust in a person. Bright Eyed needs to come up with the 30-second "elevator speech" that appeals to her emotions, not her financial sense (or lack thereof). This is a difficult proposition, since the speech cannot -- under any circumstances -- personally attack the cousin's character. That will only cause her to jump to the defense of the cousin and close her mind to the possibility that he could be leading her astray.

The best way that I can see is to get a look at her financial documents, do an analysis, and then tell her point blank exactly how much she will be losing if she follows the cousin's advice. Dollar figures usually don't lie (unless you're a CFO), and everyone understands dollars. Forget about how you arrived at such dollar figures. She won't be in the right frame of mind to understand, nor will her mind even be ready for such information. Just give her the bottom line numbers, and then let those sink in over a few days or weeks.

Her first step after hearing your numbers will be to run to the cousin for reassurance that those numbers are wrong, and that she couldn't possibly be losing that much money. Instead of giving real answers, the cousin will give her all kinds of emotional platitudes to ease her mind, (e.g., he's a "professional" and you're not, he's family and wouldn't do anything to hurt her, etc....) After meeting with the cousin, she'll come back to you with a look of self-assurance, and will probably repeat what the cousin told her. Be ready for this with a series of questions that will chip away at this self-assurance, such as "did he explain .....", or "did he tell you that you could be making more money if you did X, Y or Z", etc..."

Your whole task her is to break the spell the cousin has cast over her and other people. Don't paint him as evil, just ignorant of the truth.

 

[bright eyed]

i've been trying to avoid the - take my word over his scenario.

i want her to figure it out for herself - use her own brain - or else she will always seek someone else's advice over her own. this isn't the first time where she's made unwise financial decisions

over the weekend i went through a real rollercoaster of thoughts - at one point i considered pulling together an intervention then, by the end of the day i thought, if these people are going to put thousands of dollars into something without researching it, then i can't help them. really i think at some point it will just look like i'm the naysayer and they will think i'm just bitter or something.

i do think i will share with her the information about the law firm investigating the practices, and the numerous other cases that had already been filed against them - at least that shows i'm not the only one who thinks this stuff stinks. the consumer advocates report also shows that western reserve's fees are higher than anyone elses (highest allowable by law) which i will flag - that even if people want a vul, she's peddling the most costly one. in one of the previous law suits a guy who felt shafted by the vul, sued wma (wfg predecessor) - on a message board someone ran the numbers and found that if the guy contributed $50k, and it earned the max 12% as assumed, over 33 years, the portfolio would earn $2.5 mill, but the client would only receive 1.2 mill after the fees!!! that's insane...

part of my new calm about this is - if any of them had done 10 minutes of googling - they would have had enough to send up red flags. i can see how people got duped 10 or so years ago, but now with the internet you are on the hook to find out for yourself.

i will let you know how it goes...thanks everyone for helping me sort these things out - i really really appreciate it!

 

[DRiP Guy]

Not peddling financial products, but same mindset:

http://www.cs.cmu.edu/~dst/Amway/

 

[lswswein]

This link has some data on how bad VUL's are:
http://www.weac.org/News/2002-03/march03/dollars&sense.htm

Here’s another example, this time with ING Reliastar Life (Minneapolis) Flexdesign plan. You are a female age 45. You buy a $100,000 policy and pay $1,074 per year. The value of insurance is $168 per year, while the extra money sent in is $906 per year, or $9,060 over 10 years. Fees charged against the policy are 5% of each premium, plus a 10-year surrender charge (% not stated), plus $99 per year administrative charge, plus 0.35% per year mortality and expense fees. The net result? If you earn 10% a year on your sub-accounts, your $9,060 extra sent in will blossom to $ 9,416. Wow! If your sub accounts average only 9% earnings per year, which would seem quite good, you will lose money.

Maybe you can do some math like that and show her how much she is paying in fees etc
-h