Complaint Review: WADDELL AND REED - Kansas Missouri

The NASD Wednesday slapped Waddell & Reed with more than 6,700 complaints, charging that the firm systematically encouraged brokers to recommend unsuitable variable annuity exchanges to its customers. Two company executives were cited. The firm’s president, Robert Hechler, has been charged with encouraging the transactions in question, and national sales manager Robert Williams with supervisory failures. According to the complaint, between January 2001 and August 2002, Waddell aggressively pushed brokers to switch variable annuity contracts with United Investors Life Insurance to similar annuities provided by Nationwide Insurance. The move was prompted by UILIC’s unwillingness to share certain fees it received on sales of annuities at Waddell. The NASD alleges Waddell & Reed failed to determine whether these switches would be beneficial to customers. These exchanges generated $37 million in commissions and cost Waddell customers $10 million in surrender fees, according to the NASD. According to the NASD’s analysis, at least 1,400 of the firm’s customers were likely to lose money by making these switches. “Engaging in a campaign to make such recommendations without the assessment of the suitability of the exchange, simply because it will advance the firms’ own commercial interests, is completely unacceptable,” says Mary Schapiro, NASD vice chairman and head of regulatory policy and oversight. Waddell & Reed has denied the allegations and plans to defend its sales practices and compliance procedures, according to a company release. Company officials did not return calls seeking comment. The firm’s release says that the complaint is “factually and legally inaccurate” in many places, and went on the attack against UILIC. Waddell says the NASD’s inquiry was initiated “without a single customer complaint and was promoted by UILIC to further its litigation interests.” Waddell, however, does not address specific charges in the NASD’s release, simply saying the complaint is based on a “hypothetical model” that no firm would ever use. According to the NASD, the switching campaign began when UILIC, the original issuer of annuities sold by Waddell, did not agree to share a portion of the fees it collected from annuity sales at Waddell. At this time Nationwide Insurance stepped in and agreed to the fee sharing arrangement, spurring a push by Waddell management to have advisors switch clients to Nationwide’s variable annuities. The push, apparently, worked. Switches from one to the other jumped more than 500 percent in March 2001, and another 490 percent in April 2001, the NASD alleges. Clients paid surrender charges to switch, as well as incurring a new surrender-charge period limiting their ability to surrender their new annuity contracts. In addition, switchers paid higher ongoing fees.

Hello,

I have been working with Waddell and Reed for about 6  months and it has been quite the wild ride.  This is business that is not for the faint of heart!  I did pay for my own testing, but I am looking forward to being compensated for my testing fees which should happen in the next few months as long as things go according to plan.  The culture in this company is amazing!  Everyone is so helpful, and wanting to help you succeed.  I have been soooo impressed with all of the advisors that I have been able to rub shoulders with.  They are so smart, and so focused on helping others.  I also believe that Waddell and Reed is one of the best investment management companies out there. I could not be more happy with the company.  Remember that Waddell and Reed Advisors are 1099rs...not W2rs.  This is YOUR business.  If you are an advisor it is your resposibility to take control of your practice... blaming management, the training program, or having to pay for your own testing seem to be what advisors say when they do not have what it takes to perform the essential activities each day in order to be successful.  YOU control your destiny, NOT others.  In my opinion, it is a great day when someone gets to know a Waddell and Reed financial advisor.  Amazing Organization!

While I cannot attest to this from experience from this company, I will say that as a financial advisor, there are few firms that pay for your training and licensing.  When I was hired at Merrill Lynch, they did pay for all of that, but the three other firms that I had offers from did not cover these expenses.  Also, if you failed the series 7 ONCE at Merrill, you lost your job on the spot, no check mark or second chance.  It is not fair to write badly about a company for doing things are basically an industry standard.  Using only the facts that you have given, nothing sounds out of the ordinary so my guess would be that you failed the Series 7 and were angry so you decided this is how you would take that anger out.