Money Matters Radio Show #845

Now the latest on people trying to pick your pocket.  Once again, the latest warnings concern the variable annuities being sold by commission collecting salespeople – in many cases to elderly consumers.

Before I get into details, let me emphasize that I am not talking about the perfectly good annuities known as 403-b plans or TSAs that many of you have through your work as teachers, government employees or workers at a non-profit organization.  Those plans are not the annuities I am talking about today.

The variable annuities I am talking about are individual plans sold in seminars, free lunches and dinners and a number of other ways primarily to older consumers who are fearful of losing their money.  The pitch is you can buy a product that guarantees you will always make money no matter what. When the product is stripped bare and the consumer later realizes they have been lied to, it really is too late to do anything.

Consumers who complain about getting taken find regulators doing very little if anything.   So, it is up to you and adult children, it is up to you to talk to your aging parents and other aging relatives.

It is one thing when a consumer magazine goes after this issue.  You know it’s bad when a trade magazine for investment advisors and brokers has three front page articles targeting the abuses in the sales of variable annuities.

From the March 26th issue of Investment News comes the following articles:

The first warning is about the free lunches and dinners which say they will show you how to safely manage your money using variable annuities.  Apart from the bogus claims, Investment News says several salespeople have been caught deceiving people by handing out free books they have written.  It turns out the books are nothing more than sales pitches for annuities that have been written by a ghost writer.  Jim Nelson, assistant secretary of state in Mississippi says the books position the salespeople as experts in financial planning for older consumers and they are neither.

The second warning is about certifications.  I am a CERTIFIED FINANCIAL PLANNER, a well known designation that is recognized as a minimal standard for financial planners.  However, along comes other designations, which unlike the CFP designation are not much more than sign up and pay your dues. The latest of these is the so-called Institute for Elder Planning Studies, which one regulatory agency – the NASD – has cited for quote “troubling” marketing practices.  This is one of the marketing groups peddling the ghostwritten books used by salespeople.

It appears now that this group and the Certified elder Planning designation are both out of business.  One NASD official says such operations are quote, like cockroaches.  When you shine some light on these things, they run away. The bad news though is that they shut down as one and open up a week later as another one.

But a second group called Brokers Choice of America is also cited for training salespeople in tactics that I will let you judge for yourself.

Brokers Choice trains sales people with advice such as this:

Assume you are selling to a 12 year old who is blind but smart.
Probe and disturb people attending your free lunch or dinner so they reveal their fears.  Hit their fear, anger and greed buttons.
Regulators in Massachusetts say the training methods are used to intentionally terrify seminar attendees.
Finally, get this.  The instruction manual says while money is being transferred from a CD to an annuity, the agent should talk to the older consumer and say the following.  While we are waiting for the moneies to be transferred, I would like to ask that you not mention a word about this to your kids.

Then there is Piece of Pie Strategic Coaching.  It says salespeople should stick to their scripted sales pitches and not stray away from the system they say will separate the prospect from their current advisor.  The goal is to mortify the client 100% of the time.  In one case investigated in Massachusetts, a salesman using this approach was charged with a wide range of dishonest and unethical practices.

Finally, in the third article in Investment News, the lead story was about one bank lowering the commissions on variable annuities sold by bank affiliated salespeople.  Wachovia joins Raymond James brokerage firm which have admitted the high commissions of variable annuities have likely been an incentive for their sales forces.  Wachovia told Investment News quote, “we wanted to take any conflict out of the product for financial advisors.” Bank of America is reportedly about to do the same thing.

So, here we have banks and brokerage firms admitting publicly that these products are popular because of the high commissions paid to salespeople. Investment News says one concern about self imposed reforms by banks, is that salespeople may leave to go to outfits that allow them to maximize their commissions.

I had added this latest news to my growing list at the web site MoneyBulletin dot com.

My advice is simple to all of you listening.  The advice comes from Andrew Tobias, author of  THE ONLY INVESTMENT GUIDE YOU WILL EVER NEED.  “When someone tries to sell you an investment – run.”

Trust nobody.  Assume they are lying to you.  Even me.  Do not trust me.  If what I say can not be verified by independent sources – run.

Naturally, I feel confident in the advice I give.  My professional life is as a fee-only advisor.  I sell nothing, but people do hire me and my firm for our objective roles in their financial life,

Advisors who are members of NAPFA are zealously fee-only.  If you get a financial advisor, they or their firm should be a member of this organization.  A list of planners in your area is available by going to their web site NAPFA dot ORG.

If you are still not convinced about the evil doings of annuity sales people, consider the following.

I would not buy this kind of annuity plan for myself.
Clark Howard would not buy one for himself.
I have not met any fee-only advisor who wants to buy one of these products.

If all of us won’t buy it, why would you?