In a case that could have wide repercussions for financial advisors and consumers, the State of Illinois last week filed civil charges against a financial advisor that essentially alleges he advertised on his website that he was a fiduciary when he was really just trying to sell annuities. The advisor says the government has it all wrong.
“I categorically deny all of their allegations as deceitful half- truths,” says Richard Van Dyke, Jr. “The charges were instigated by a regulator at the Department of Securities that has been spearheading this unfairly. He’s taken obsessive interest in this and has had a history of going after RIAs that are also insurance-licensed.”
The case is unusual because advisors for years have made all sorts of claims on their websites about their intentions to do what it is in their clients’ best interest but are never prosecuted for misleading clients by not doing what’s in their best interest.
For example, it’s not uncommon for advisors who are registered reps to say on their websites that they always put the interests of their clients first. Only fiduciaries, however, are legally obliged to do what’s in a client’s best interest. Registered reps are required to provide suitable advice to clients but do not have to put clients’ interests above their own. Similarly, it is not uncommon for registered reps to say they work with clients on a fee basis or even a fee-only basis, even if they generate most of their revenue on commissions.
“Between the time period of January 2012 through at least July 31, 2012, a virtual spokesman appeared when visitors first visit www.dickvandykefinanical.com,” says the state’s lawsuit. “During the relevant time period, the virtual spokesman stated as follows: ‘If you want a successful financial plan these days, you need a financial advisor you can really trust. You need to know as much as you can about that person's credentials, background, and certification.
“’So on this site, you'll find third party reports about Dick Van Dyke such as the Better Business Bureau, Society of Certified Senior Advisors and the National Ethics Bureau's extensive 7-year background check,’” says the state, quoting from Van Dyke’s website. “’He believes in principles like full disclosure and transparency and he doesn't sell investments on commission which means he's on your side so you get to reach your goals first before he does.’ When's the last time an investment advisor put you first?"
Registered reps have not been prosecuted for making claims on their websites that blur distinctions with RIAs or ignore them totally. If successful in its prosecution, Van Dyke would become an example—in Illinois and perhaps beyond—of what registered reps cannot say about their obligation to clients.
Illinois is asking a judge to order Van Dyke to disgorge all of the commissions he has earned on replacement annuity sales, assess $100,000 in civil penalties, pay an additional penalty of $10,000 for each violation of a state law to protect senior citizens, and pay for the cost of prosecuting the case. Illinois Assistant Attorney General Rebecca Pruitt signed the 18-page complaint naming financial advisor Richard Lee “Dick” Van Dyke, Jr., and Dick Van Dyke Financial, Ltd.
“Defendant Dick Van Dyke engages in a pattern of conduct whereby he gains the trust of senior citizens by holding himself out as an objective, knowledgeable and unbiased financial services expert for consumers facing retirement, when in fact his undisclosed agenda is to sell deferred annuities as a one-size-fits-all financial solution for senior citizens,” says the complaint filed in Illinois State Court in Sangamon County.
“Defendants' website www.dickvandykefinancial.com employed multiple marketing strategies and statements to portray Defendant Dick Van Dyke as a financial services provider with specialized expertise in advising elderly consumers facing retirement in a full range of financial, legal, and tax, and related matters,” says the complaint. “For example, the Mission Statement on Defendants' website states: ‘Our Mission: Assist our clients in achieving their goals and objectives by integrating all aspects of their financial well-being; including estate, investment, insurance, legal, and tax strategies. We assist them in gaining clarity amidst a world of increasing complexity. We serve as our client's Financial Quarterback by assisting them with a successful team approach.’”
“Despite representations of providing a full range of financial and other services, since January 2012, Defendants Dick Van Dyke Financial, Ltd. and Dick Van Dyke have been licensed only as an insurance agency and producer respectively,” says the state’s lawsuit.
Van Dyke says he never claimed he would provide legal, tax and other advice beyond insurance. He says his site made it clear that he “:quarterbacks” outside professionals. Van Dyke also says that he did not claim to be an RIA after he withdrew his registration and that he updated his website to reflect this before the registration was withdrawn.
The case could also have wider implications because the state’s action is premised on its assertion that indexed annuities are securities. Indexed annuities, which are insurance products that have an equity component, are controversial because insurers have maintained they are not securities and that reps do not need a securities license to sell them. Van Dyke says indexed annuities are widely accepted as insurance and not securities products and that Illinois is alone in its effort to see them regulated as securities. The Illinois Securites Department in June 2011 issued an order treating indexed annuities as securities.
“The interesting thing is the state claims that indexed annuities are a security,” says Van Dyke. “It is not a security and I believe I will prevail and seek damages because they have no jurisdiction.”
Van Dyke sounds genuine in his claims that the state is unfairly prosecuting him and he may indeed make a bad example for regulators trying to enforce the distinction between how RIAs and brokers advertise.
Van Dyke says he was investigated after a complaint was filed against him by a competing financial advisor. The other advisor, says Van Dyke, is trying to get a widow to invest assets with him and has persuaded her stepchildren that Van Dyke is giving her bad advice. Van Dyke says neither the widow nor any of his other clients have made any complaints to the state and that he has never had a customer complaint or regulatory problem.
The state says Van Dyke claimed on his website that two executives were members of his “team” when, in fact, they are executives at an insurance marketing organization. Van Dyke says he exchanged more than 4,000 emails with the tow individuals doing research on products to assist clients.
The lawsuit also includes a seminar invitation that the state says was deceptive because it claimed to not be a sales seminar, an annuity presentation or a “free meal come-on to get you to buy something.” Van Dyke says his RIA at the time provided advice on securities and financial planning and that the invitation was not deceptive.
Van Dyke, 56, formerly ran a small chain of appliance stores and is well-known name in the community, though not related to the famous comedian and TV star who bears the same name. “I’ve been in this community all my life and would never do anything to jeopardize my reputation here,” he says.
Van Dyke says the state offered to settle the case if he would sign a consent decree, but that he turned down the offer. “We will win this hands down,” he says. “Look at my book and my reputation and you will see that I am a good guy and that you should consider working with me.