On August 26, 2024, an investor alleged that Boruch Gutter failed to explain the risks associated with a variable universal life (VUL) insurance policy purchased in 2017. This serious allegation suggests that Gutter, as a financial professional, did not fulfill his duty to ensure his client fully understood the potential downsides of this complex investment product.
VUL policies combine life insurance with an investment component, where a portion of the premiums paid are invested in various subaccounts, similar to mutual funds. While these policies offer the potential for growth, they also come with significant risks, including:
- Market fluctuations that can impact the policy’s cash value
- Higher fees and charges compared to traditional life insurance policies
- The possibility of the policy lapsing if sufficient premiums are not paid
As an investor, it’s crucial to understand these risks before purchasing a VUL policy. Financial advisors have a responsibility to clearly explain the potential drawbacks and ensure that the product aligns with their client’s goals, risk tolerance, and financial situation. Failure to do so can lead to significant losses and damage to an investor’s financial well-being.
According to a study by Bloomberg, financial advisors who engage in misconduct often face little to no consequences, with nearly half of advisors who have been disciplined remaining in the industry after a year.
Boruch Gutter’s background and broker dealer
Boruch Gutter has been registered with Equitable Advisors since 2015. Prior to this, he was registered with MML Investors Services from 2004 to 2015. Gutter’s BrokerCheck record reveals one other disclosure in addition to the August 2024 investor dispute. In 2018, he was named in a customer dispute alleging misrepresentation and unsuitability related to a VUL policy. This complaint was denied.
Understanding FINRA rules and VUL policies
FINRA Rule 2111 requires brokers to have a reasonable basis to believe that a recommended transaction or investment strategy is suitable for the customer, based on the customer’s investment profile. This profile includes factors such as age, financial situation, risk tolerance, and investment objectives.
When recommending a VUL policy, brokers must ensure that the client understands the complexities and risks involved. They should clearly explain the potential for market losses, the impact of fees and charges on the policy’s cash value, and the consequences of not paying sufficient premiums.
“An investment in knowledge pays the best interest.” – Benjamin Franklin
A report by Financial Advisor Complaints highlights some of the worst cases of investment fraud and bad advice from financial advisors, emphasizing the importance of due diligence when selecting an advisor.
Consequences and lessons learned
The consequences of a broker failing to explain the risks of a VUL policy can be severe. Investors may find themselves with a policy that does not meet their needs, facing unexpected losses or even the lapse of the policy. This can result in significant financial harm and the need to seek legal recourse.
For investors, this case underscores the importance of working with a trustworthy and transparent financial advisor who takes the time to thoroughly explain investment products and their associated risks. It’s also crucial for investors to ask questions, conduct their own research, and ensure they fully understand any investment before committing funds.
Brokers and financial advisors must prioritize their clients’ best interests and provide clear, comprehensive explanations of complex products like VUL policies. By doing so, they can help investors make informed decisions and avoid potential financial harm.
