Watch Out for Those Who Prey on the Elderly

I receive quite a few e-mails requesting free financial advice. Often the questions are fairly routine, but a few share heartbreaking stories of investors who are trapped in difficult situations. In this case, the writer was glad to have me share her story, in hopes that it would prevent others from repeating the same mistakes.

Phyllis, (not her real name), contacted me recently about some concerns she had about her elderly father's finances. "I asked him if he had any money in a certain type of investment. He told me he didn't think so. Turns out he did. About a year ago he went to his bank because a CD was coming due. The teller told him he had a lot of money and he should talk to someone at the bank who could get him more money than CDs.

"He was then introduced to someone he thought was a 'banker' but was in fact a broker with the bank's investment services company. He took the 'banker's' advice and invested over $150,000 into this high commission, 10-year investment. He was 85 years old!

"He was told that the money was safe and it could be made available to him anytime he needed it. He was not told of surrender charges, commissions and fees. He didn't understand that the risks were much different than those associated with a CD.

"He really liked the 'banker' and would visit her when he went to the bank. He said she gave him a mug, some pens and two sweatshirts. Soon after, he withdrew all of his other monies ($170,000) so he could "consolidate" all of his investments with her per her advice."

With further investigation, Phyllis discovered that this "banker" had invested 90 percent of her 85 year-old father's money into variable annuities. Now 90 percent of his money was in the stock market! When the penalties on one annuity were over, she had him roll it to another. When she went to work with another bank, she had him transfer his money there, continuing to tap all his available assets.

Phyllis also discovered that the banks this broker worked for were heavily fined by the state for selling annuities to elderly investors, like her dad. This had been big news in her area, and once Phyllis realized her dad had been a victim, she contacted the state for help. But unfortunately, her dad had purchased his annuities just outside the time that the fine covered, and he could not get a full refund of his money.

She has contacted the banks in question, and while they agree with her that putting an 85-year-old into a variable annuity is inappropriate, they just keep passing the buck. There's been an offer to reduce the surrender fee by half, but that's far short of a full refund. The broker hasn't been fired, and her father's annuities won't come due until 2015, when he'll be 95 years old. Until then, he's living on $15,000 from his pension and Social Security.

"What really hurt and repulsed me," explains Phyllis, "was the fact that this broker pretended she really cared about my father. He thought they were friends. He shared all of his financial information including banks and bank account numbers, CDs, etc. Information which he never discussed with any of us kids. So she actually knows more about my father's finances than I do. She taunted me on the phone about that.

"He thought since she was all dressed up and working with the bank, that she was intelligent and could look after his money better than we could. He thought she was actively managing his money daily.

"Tell your clients to share their financial information with their child. Their children may not have the financial background but they care about their parents. My father is a living example that these banks are continuing to target seniors (for what many consider inappropriate investments.)"

Seniors beware. You can't trust someone with your money just because they work at a large bank, dress nicely and give you a free mug. These people are trained to gain your trust, uncover your assets, and earn as much commission off of you as possible. Not every "bank broker" operates this way, but many do. Skepticism is a healthy thing!