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For years, I've been warning seniors about the dangers of equity
indexed annuities. And I've taken quite a bit of heat over it from
those in the insurance industry. While many agents, and some
readers, have discounted my views, the uproar against equity-indexed
annuities, and the tactics used to sell them, is growing louder and
louder. And now the national media has entered the fray.
On Sunday, April 13th, 2008, Dateline NBC aired a hidden-camera
investigative report titled "Tricks of the Trade" with reporter
Chris Hanson. They recorded actual insurance agents selling
equity-indexed annuities to seniors, went to their seminars, and
even attended training sessions for agents.
Agents might dismiss my claims when I say that equity-indexed
annuities are a horrible investment, but it's hard to disqualify the
comments of Joseph Borg, the Alabama Securities Commissioner. When
asked by Mr. Hanson if he would recommend an equity indexed annuity
to his own mother, Mr. Borg responds, "I wouldn't. I wouldn't
recommend them to anybody."
Mr. Hanson also talks to the Minnesota Attorney General Lori Swanson
about the sales tactics agents use to convince seniors to buy these
investments. She says, "What is tragic about it is when those agents
go into the seniors' homes, it is literally the wolf among the
lambs. It's happening all around the country and it's happening on
large scales and these insurance companies need to knock it off."
These comments come, not from other financial advisors like myself,
but from public servants entrusted to protect the citizens of their
states. And these aren't the only public officials who feel this
way. Many states are taking action against the insurance industry
and the tactics used by agents selling these products.
One of the biggest bones of contention is the common sales tactic of
gaining credibility with the investor through the use of deceptive
credentials. Often, those selling these products are life insurance
salesmen who have little if any training, background and experience
in investing. In fact, for most it is against the law for them to
render financial advice. But isn't that exactly what they are doing?
Dateline showed this scheme in great detail when they secretly
attended Annuity University, a training seminar for agents selling
equity indexed annuities. They discovered, that for the right price,
an agent can make it appear they've written books, magazine
articles, and have been interviewed by a national radio show. You
can even have your name and face on a magazine cover that contains a
large picture of Federal Reserve Chairman Ben Bernanke.
All of this is designed to make the insurance agent sound more
qualified than they might otherwise be. And it works. Many seniors
follow the agent's advice because of these credentials. Minnesota
Attorney General Lori Swanson is not amused with these tactics and
doesn't pull any punches in her response. She says it's like
"handing them [the agents] loaded guns so they can walk into the
senior's home and rip them off."
Ms. Swanson goes on to say that "this is part of the marketing ploy,
build trust, show you're reputable." Dateline reporter Chris Hanson,
who is not an agent, was able to get his own picture and name on a
magazine for $1,500. "That's terrible, and you've captured it right
on tape," responds Ms. Swanson, "what we're hearing in all of these
cases and investigations that we're bringing [is] that these agents
are not telling the truth."
Speaking of not telling the truth, Dateline captured instructors at
Annuity University training agents to frighten seniors by telling
them that their money isn't safe at the local bank, because the FDIC
is insolvent. This simply is not true and there has never been a
single instance when the FDIC has failed to pay out on a valid
claim.
Ms. Swanson also believes agents aren't being truthful when
discussing surrender penalties with potential investors. After
viewing the typical sales pitch caught on hidden camera, she
replies, "It's absolutely misleading. I mean really, they need to
deal with these seniors straight."
So don't just take my word for it. Be very careful when considering
any investment. Do your own research. Read the contracts and the
fine print. If you can't understand it then don't invest.
In addition to being a nationally syndicated columnist and Certified
Financial Planning Practitioner, Mr. Voudrie provides personal,
private money management services to clients nationwide.
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