Investor Abuse! Annuity Tales from Continuing Education

Jeff is doing lots of continuing education this time of year. Here are some stories from one of his texts about poor annuity sales. Sadly Camarda sees evidence of similar abuses nearly every day as we talk to new prospective clients.

An investment advisor sold approximately $1.2 million in variable annuities to senior investors between the ages of 72 and 87, and earned nearly $98,000 in commissions. These investment products were not suitable for the clients, and in one case the annuity issuer had a policy against selling variable annuities to anyone over the age of 75. The advisor was fined $25,000, her registration was suspended for four months, and she was prohibited from selling variable annuities or handling accounts for individuals over the age of 65 for five years.
A financial services firm engaged in abusive sales practices and inadequate supervisory procedures for recommending inappropriately high-risk investments to its clients, many of whom were retired or approaching retirement. The firm was censured, fined $500,000, and ordered to pay restitution totaling more than $2.8 million to its clients.
A former Oklahoma insurance agent engaged in a twisting scheme in which he convinced clients to surrender their existing annuities in exchange for new ones solely to generate commissions; the agent never disclosed that the clients would incur an early termination penalty. In one case, an elderly client lost nearly $14,000 for surrendering his annuity while the agent earned more than $17,000 in commissions. Over a six-year period, the agent engaged in twisting more than 80 times. Even after his license was revoked, the agent continued to sell annuities by forging another agent’s name to transact business. The agent was sentenced to 27 months in federal prison and ordered to pay more than $500,000 in restitution.
An insurance producer recommended that a 76-year-old single woman, who was suffering from memory problems, terminate an investment account containing certificates of deposit, stocks, and bonds, and deposit the funds into an annuity. After investing almost $500,000 in the annuity (which constituted virtually all of her liquid assets), the woman learned that the annuity contained a nine-year surrender period (her life expectancy was only 12 years). The annuity also paid lower returns than her investment account. To move the funds into the annuity, the elderly woman paid nearly $10,000, including over $6,000 in commissions. The agent’s license was suspended.10

From WebCE Ethically Serving Seniors

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