Aegon Shares Decline Following Spruce Point's Short Position Warning
On Monday, Aegon Ltd. (NYSE: AEG, Euronext: AGN) shares fell by 3% following a critical report from the short-selling management firm Spruce Point Capital. The report criticized Aegon's primary distribution branch, World Financial Group (WFG), for its aggressive sales and recruitment tactics and highlighted competition from a new financial services platform called Global Financial Impact (GFI).
Spruce Point's research on WFG's practices uncovered issues related to the distribution branch's business model, including forensic analysis and field research. The report underscored that WFG significantly contributed to Aegon's financial results, generating approximately $161 million in operating income from distribution activities in 2023. This figure represents about 35% of Aegon's operating earnings in the Americas segment and roughly 25% of Aegon's consolidated operating earnings.
The report also expressed concerns about Aegon's dependence on Indexed Universal Life (IUL) sales, a product criticized for its complexity and fees. Furthermore, Spruce Point suggested that a significant portion of WFG agents' sales may have been made to themselves or their downline agents, a practice that closely aligns with the Federal Trade Commission's definition of a pyramid scheme. Although WFG publicly claims not to operate as a pyramid scheme, the report urges the company to adopt more conservative practices to prevent such allegations.
In addition to recruitment concerns, the report examined WFG's compensation brochure, claiming that it used outlier cases to define potential earnings for agents, potentially misleading new recruits with exaggerated promises. According to Aegon's data, the average WFG agent makes only 0.4 sales per month, whereas the brochure suggests an average of 5 personal sales per month. Spruce Point also noted that the average WFG agent earned approximately $6,500 in 2023, a figure that does not account for the costs incurred by new recruits to become licensed agents, contributing to a high turnover rate.
Spruce Point's research estimates that recruitment is responsible for millions of dollars in profits for Aegon; in 2021, the top 25 recruiting teams brought in about 390,000 members and generated approximately $50 million in fees to WFG. The emphasis on recruitment within the WFG system is so significant that advancement and earning bonuses primarily occur through recruiting efforts.