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JMacDonald

Annuity Scam

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Hi,

Here is an ARTICLE that I found over at the Vanguard Diehard Forum on M*.

 

And some people wonder why annuities have a bad name. I think that people who do this to seniors should have to spend time in a small cell with Bubba.

 

Joe

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Guest TR1982

This article made no sense to me. I've never heard of an annuity that couldn't be annuitized at any time. In fact, I've never heard of an annuity that didn't require that it be annuitized by no later than the 85th or 90th birthdate. How could any insurer provide a of income for someone 115 years old? There would be no actuarial rate for that.

Furthermore, I've never heard of annuity that wouldn't allow the beneficiary to have full penalty free access at the death of the contract owner. Something doesn't seem right about this article.

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I'll have to agree with TR on this one, the author doesn't appear to understand the product. Having said that, It is likely the product, if variable was very expensive (though it doesn't sound like it because it might have paid a death benefit). I would venture to guess it was an EIA - but there is really no way to know. The article simply isn't clear.

 

I am not a fan of annuities being sold to seniors, but many times a fixed annuity can do the trick just fine - as long as the product is fair (which it usually isn't). I don't see any use for a variable annuity (unless immediate) for seniors.

 

ScottyD

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Guest TR1982

One problem that confuses me is that an immediate annuity might be very appropriate if the customer needs a of income. If the client is using it only as an investment vehicle, then time period would be a big issue. That article raises more questions than it answers.

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Hi all,

In yesterdays LA Times, a follow-up story about this horrible practice was published. While the insurance company did refund every penny back to the couple (and they only did that because of the publicity), what galls me is that there was no report on the sales person who sold this "product." IMHO he or she should be in the penitentiary. LA Times Article on this Scam

 

BTW FT, the bill that is proposed does just what you suggest that no annuities should be sold to persons over 65, but of course the insurance industry is fighting it stating that this would "discriminate" against seniors. Where have we heard this kind of poppy before, OH yes, it was AB2506 bill. They fought that one tooth and nail too.

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Guest TR1982

Steve,

I am not defending any wrongdoing that might have occurred in this situation. I think, though, we should all take a deep breath when we see these kinds of articles. I learned a long time ago to not believe everything I read in the newspaper. The media have their own axes to grind and "conveniently" omit facts and circumstances that might substantially change how we might view a situation. I'm sure you have often seen this yourself in your profession.

 

The previous article in this case left huge gaps of information that would have been important in judging any wrongdoing or unethical behavior. In addition, while I did not read the article since I couldn't access it, the fact that the article did not say what was done or not done to the agent, does not mean that something didn't happen.

 

Remember, these same kinds of situations happen in education as well. The facts of the case are often quite different than what we read from a reporter. I would never judge the behavior of an individual in this kind of case from a newspaper article. I would hope that you would grant the same discretion to others in other professions.

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From the LA Times article:

 

"Opponents in the insurance industry have portrayed the bill as anti-business, however, and Scott is in a tough fight to get it passed.

 

They say previous reforms have given regulators greater oversight and funding to go after shady operators. Reputable insurance companies already police themselves, said Mike McCaffery, a California spokesman for the National Assn. of Insurance and Financial Advisors.

 

Issues raised by the insurance industry prompted Scott last week to hold the bill in the Assembly Insurance Committee until the next legislative session in January. Meanwhile, Scott said he would attempt to address those concerns while keeping the core issues of protections for seniors in place. "I've got to walk a fine line between what I think is pro-consumer and yet get a bill that I think will get signed into law," he said. "To do that, I need more time. But I'm not giving up on the fight at all."

 

************************

 

My favorite lines here are that the bill is "anti-business," and that "reputable insurance companies already police themselves." Well, duh! Isn't this bill designed to go after the DISreputable insurance companies? What a crock. Oh, and then there's this gem: "We see some seniors well into their 80s who have a level of financial sophistication," he said. "They say, 'I'm in charge of my money, and this is what I want to do with it.' " Something tells me that financially sophisticated eightysomethings aren't lining up to buy a product with surrender charges that go past their life expectancy. Financially naive eightysomethings, on the other hand...

 

 

 

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TR, the bill in question proposes "setting standards for selling annuities" to the 65 and up crowd. A separate proposal thinks doing away with ALL VA sales for the 85 and up crowd is a good idea.

 

Setting aside for a moment what specific "standards" are being proposed (and I agree with you, having all the facts is essential here), I think both of these CONCEPTS are solid.

 

 

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Guest TR1982

BTW,

The danger of a bill that would codify suitability standards for investors is twofold:

 

1) If regulators or legislators do it for one kind of product, other products will surely follow. Do you want regulators telling you at age 85 that you cannot invest in the Vanguard Index 500 mutual fund? This is a very slippery slope.

 

2) Why should any regulator or legislator tell you what you can or cannot buy at a certain age? This approach defies all logic and inserts the government into a client/advisor relationship that could be detrimental to the client. Who is the government to say that some particular investment is not suitable for all investors beyond a certain age? That is the whole purpose of the individual advisor/client circumstance.

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Guest TR1982

It also seems disingenous to me that educators would support this kind of idea. I have watched educators and education groups fight all kinds of learning standards over the last 20 years on the premise that all children are different and have different needs and learning styles. Well, aren't all investors different and don't they have different needs and circumstances?

 

I guess it just depends on whose ox is being gored.

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I have to agree with TR on this. I don't like most VA's, but banning people from buying them goes against a free society. This may sound contradictory to my stance on 403(b) plans, but I assure you it isn't. I believe a fiduciary responsibility should be taken by the employer and that true competition should exist along with full disclosure. I believe that VA's need better disclosure, perhaps by a third party even. It's easy to tout the benefits of these products without disclosing the costs and the real risks involved.

 

ScottyD

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A question please'

 

In the area where I live, there are advisors that specialize in selling annuities to senior. They sponsor dinners where mainly seniors are invited and push these annuities. I attended a few, and the costs were not disclosed in any of the presentations.

 

I wonder if these shops are in the best interest of the senior.

 

I guess that there might some benefits to a senior buying an annuity, however for the most part, I think that the investment is detrimental to the financial health of the vast majority of the seniors.

 

What can be done to protect these older citizens?

 

Ira

 

 

 

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