Financial Product Sales: Actions Needed to Protect Military Members Page: 2 of 28
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Highlights of GAO-06-245T, testimony
before the Committee on Banking,
Housing, and Urban Affairs, U.S. Senate
Why GAO Did This Study
In 2004, a series of media articles
alleged that financial firms were
marketing expensive and
potentially unnecessary insurance
or other financial products to
members of the military. GAO's
report for this committee examined
(1) features and marketing of
certain insurance and securities
products being sold to military
members and (2) how financial
regulators and the Department of
Defense (DOD) were overseeing
the sales of insurance and
securities products to military
members. GAO also examined
issues relating to DOD's oversight
of insurance sales for a report
issued in June 2005.
GAO's report to this committee
recommends that Congress
consider acting to ban contractual
plans, have regulators ensure that
products being sold to military
members meet existing insurance
requirements, and have
appropriateness or suitability
standards for military sales
developed. GAO's report also
recommends that DOD and
financial regulators take steps to
improve information sharing
between them and take other steps
to improve their oversight efforts.
These organizations provided
comments generally agreeing with
this report and its
To view the full product, click on the link
above. For more information, contact Richard
Hillman (202) 512-8678 or email@example.com.
FINANCIAL PRODUCT SALES
Actions Needed to Protect Military
What GAO Found
A limited number of firms accused of using deceptive sales practices are
targeting costly financial products to military members with features that
reduce their benefits to military purchasers. Although some service
members benefited from a product that combines insurance with a savings
component, the additional coverage was more expensive than the low-cost
government insurance almost all service members already receive. One
feature reducing these products' benefits was that if the service member
ever stopped making payments and did not request a refund, the
accumulated savings is used to continue the life insurance coverage. With
military members often leaving the service within a few years, most stopped
their payments and likely failed to amass any savings from their purchase.
Various regulatory and other actions have been taken against the insurance
companies that sell these products in the past and new investigations are
underway in 14 states over whether these companies have failed to clearly
identify the products as insurance as required by law or whether the
products' features comply with all state insurance requirements. A small
number of broker-dealers were also marketing a securities product-the
mutual fund contractual plan-that has largely disappeared from the civilian
marketplace. Although potentially providing returns equivalent to other
products if steady payments are made over a long period, these contractual
plans proved more expensive to most military purchasers than other widely
available alternative products because many military members stopped
making payments in the first few years. In addition, the largest broker-
dealer selling contractual plans has already been sanctioned by regulators
for using misleading marketing materials and examinations into the
practices of other firms marketing this product are also underway.
A lack of routine complaint sharing by DOD prevented financial regulators
from identifying inappropriate sales to military service members earlier.
Although insurance regulators in some states review sales activities
periodically, most rely on complaints to indicate that potentially problematic
sales are occurring, particularly since no appropriateness or suitability
standards exist for insurance. Securities regulators' efforts were also
hampered by the lack of complaint sharing from DOD personnel. Because
sharing with financial regulators can be complicated by privacy regulations
and potential legal restrictions, DOD personnel at individual installations
generally resolved matters involving product sales with companies directly.
However, in light of the problems identified in our June 2005 report and the
report issued for this committee, DOD has efforts underway to revise its
solicitation policies regarding such sales, and has reviewed ways in which it
can legally share additional information with financial regulators. However,
DOD has not yet issued these new policies or coordinated with military
installation personnel or with regulators on appropriate ways that additional
sharing could occur.
United States Government Accountability Office
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United States. Government Accountability Office. Financial Product Sales: Actions Needed to Protect Military Members, text, November 17, 2005; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc292981/m1/2/: accessed April 21, 2019), University of North Texas Libraries, Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.