PHILADELPHIA _ That night, like most nights, Phillip J. Cannella III warned that the financial world was at the brink of a massive meltdown, one that would wipe out savings and crush retirees.
"We're about to enter a horrible period, crash followed by recovery, followed by inflation," the insurance agent said last fall, pacing excitedly in front of nearly 100 retirees and middle-aged guests at the Springfield Country Club in suburban Philadelphia, enticed by the promise of a free dinner.
When he asked for a show of hands of who lost money in the 2008 financial crash, about half raised theirs. "It's going to be a world collapse, economically speaking," Cannella warned them. "You need to plan for this storm coming. You need to be in a vehicle that's not going to sink when Wall Street sinks."
If Wall Street is the problem, Cannella believes he has the solution: fixed index annuities, a popular but complex insurance product known for lucrative commissions and opaque fees.
Sales of these lightly regulated investments have surged since the 2008 financial crash, when mom-and-pop investors saw the stocks and mutual funds they counted on for retirement plummet in value. Seizing opportunity, insurance agents began pitching these annuities on cable TV and radio infomercials, telling seniors how to protect their savings with investments reassuringly described as "risk free" and "no fee."
But in most states, sales agents aren't required to disclose their commissions, typically 6 to 10 percent, that insurance carriers pay them for putting retirees' money into these long-term investments. Seniors also can face huge penalties for early withdrawals for unexpected medical bills or other emergencies.
California Insurance Commissioner Dave Jones, who oversees the nation's biggest insurance market, urged caution: "We've seen people being sold annuities that are entirely unsuitable because of their age, because of their financial circumstances. ... It's an area of increasing complexity, a population that is extremely vulnerable, and one in which there is a lot of room for mischief."
The U.S. Department of Labor, which has oversight of retirement plans, became alarmed about insurance agents and investment brokers pushing clients into inappropriate retirement investments with high or undisclosed commissions. These practices, it estimated, cost retirees $17 billion a year in excess fees.
The department crafted a regulation, set to take effect in April, that would require financial advisers to put their clients' interests first when selling investments for retirement. Known as the "fiduciary rule," it was the first federal regulation of insurance agents.
With its potential for curtailing high-commission insurance sales, Cannella said, the rule was "going to knock out half" of the agents selling annuities.
But in February, President Trump, by an executive order, halted the long-debated regulatory change and called for another review. The insurance and investment industry had fought the new rule for years and hope the new administration can kill the Obama-era reform.
If so, sales of insurance products will remain overseen primarily by state regulators, unlike sales of stocks and mutual funds, which have some federal consumer protections.
In Pennsylvania, investors have poured billions of dollars into fixed index annuities over the last decade just as the state Insurance Department has been slashing its staff. It has 225 employees, slightly more than half its 2006 workforce of 414.
Meanwhile, staffers in the department who look into consumer complaints have been saddled with the highest annual caseloads in the nation. In 2014, each consumer staffer on average had 655 complaints _ more than three times the national average, according to a Philadelphia Inquirer analysis of insurance-industry data. (Their New Jersey counterparts had a caseload of 163.)
Asked whether the department could keep up with its thousands of annual consumer complaints, spokesman Ronald G. Ruman said the agency has enough staff to be "fully able to do the job needed to enforce our laws and protect Pennsylvania consumers."
