Ethel Sprouse has a difficult life. She is a baby boomer from Cedar Bluff, Ala. Her husband has Alzheimer's disease. Her adult daughter is mentally disabled and lives in a group home. She needed a trusted financial advisory badly.
She turned to a registered representative of Allstate Financial. In 2007, she transferred all her life savings to Allstate. According to a recent report from the Public Investors Arbitration Bar Association, her nest egg was invested in a non-diversified portfolio of stocks. Mr. and Mrs. Sprouse lost approximately $400,000.
They sued Allstate in arbitration, and the case is currently pending. All of the Sprouses' allegations need to be established at a hearing. Allstate has denied these allegations and is contesting them. Mutual Service Corp. and LPL Financial, which at various times also managed the Sprouses' money, are named in the suit as well.
Allstate's iconic slogan, "You're In Good Hands," is one of the most recognizable in America. It's in the advertising Hall of Fame and is supported by massive advertising to reinforce its message.
What does that slogan mean to you? When it comes to financial advice, do you believe it conveys the impression that Allstate will put your interests ahead of its own? Otherwise, you might not be in "good hands." Rather, you would be in the "hands" of a company that could take action not solely in your best interest.
Allstate's legal position
An exhibit attached to the report sets forth Allstate's legal position. It's sobering.
It derides the allegations against it as "nonspecific and baseless."
It disputes the amount of the losses claimed by Mrs. Sprouse and her afflicted husband.
It argues that some of the losses were incurred when their Allstate representative left and joined another firm. The Sprouses' account was also transferred to the new firm.
It denies any investments were unsuitable.
As indicated, these issues are contested and will have to be resolved at a hearing. However, Allstate also asserted the following:
"Thus, any claim by Claimants based on a supposed breach of fiduciary duty fails as a matter of law. Investment advice provided incidental to and in connection with a non-discretionary account does not establish a fiduciary duty... As such, [Allstate Financial] owed no fiduciary duty to Claimants, and, therefore, no such duty was breached."
According to Allstate, being "in good hands" doesn't mean the company has an obligation to operate at a standard that places the interests of its clients above its own. And the Public Investors Arbitration Bar Association report concludes Allstate Financial is just one of many brokerage firms advertising like they offer non-conflicted and trustworthy advice that puts the investor first, but then deny any such duty when they're called to account for their actions.
What this means
A fiduciary has a legal obligation to recommend products that are in your best interest. A broker who is not a fiduciary can recommend an investment product (like a proprietary mutual fund) that is merely "suitable," even though he is aware of better, less-expensive funds.
If you really want to be "in good hands," you should only entrust your hard-earned money to a fiduciary. Be sure to get it in writing!
Dan Solin is the director of investor advocacy for the BAM ALLIANCE and a wealth adviser with Buckingham. He is a New York Times best-selling author of the Smartest series of books. His latest book is The Smartest Sales Book You'll Ever Read.
The views of the author are his alone and may not represent the views of his affiliated firms. Any data, information and content on this blog is for information purposes only and should not be construed as an offer of advisory services.