Insurance agents are taking advantage of older people.
Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot
Spots, by Sid Kess; Author/Moderator: Lance Wallach, CLU, CHFC - Excerpts have
been taken from this book about: Senior abuses.
The following example is unfortunately not an
isolated incident of an abusive sales practice. If accountants were consulted
more often by their clients, maybe the following would never happen.
Senior citizen clients thought they had every reason to trust Mr. Sell
BigPolicy as a financial counselor. The insurance agent had obtained a
designation recognizing him as WE DO NOT WANT TO MENTION THE NAME Senior
Advisor. He obtained this designation in 2002, a credential he made sure to
advertise on fliers sent to retirees.
He did not mention how easy it had been to get that title.
He had paid $1,095 for a correspondence course, then took a multiple-choice
exam with questions like, “Marketing can best be described as:” (The answer: “The
process or technique of promoting the sale or distribution of a product or
service.”) Like more than 18,700 other applicants since 1997, he passed.
Insurance companies, eager for sales representatives, embraced Mr. Sell
Bigpolicy, as they have thousands of other newly credentialed advisors.
The following year, multiple insurers paid him commissions totaling $720,000 as
his business with retirees soared.
But many of those sales came from steering older Americans into unwise
investments, regulators contend in a lawsuit.
Mr. Sell Bigpolicy denies all wrongdoing, but one of his clients – a
73-year-old widow caring for a son with Down syndrome – said he tricked her
into buying complicated insurance contracts that left her unable to pay dental
and home repair bills.
“His office was filled with things saying he was certified to help seniors,”
said that client. “The only one he really helped was himself.”
Taking care of the finances of older Americans is a huge and potentially
lucrative field, and the market is growing. Attracted by this market, many
financial planners have shifted their focus to it – and bring widely varying
attitudes and professional training to the consultation table. Training and
certification in financial gerontology is now being offered by at least four
groups.
The Securities and Exchange Commission does not regulate these groups – or any
other groups that provide financial planning certification, for that matter.
“The S.E.C. does not endorse any professional designation,” said Susan Wyderko,
director of the office of investor education of the S.E.C.
The absence of government supervision is a problem, said Stephen Brobeck,
executive director of the Consumer Federation of America. “There’s an
opportunity for fraud,” he said, adding that older people need to be very
careful about whom they trust for advice.
Regardless of any planner’s credentials, the S.E.C. and consumer organizations
say the best approach is “buyers beware.”
Investors can learn how to check the background of a financial planner,
including any disciplinary actions, at the S.E.C.’s website, www.sec.gov. Such
background checks, along with a discussion about an advisor’s approach to
investing, are well advised before signing up with a planner.
“We see too many investors who might have avoided trouble,” Ms. Wyderko of the
S.E.C. said, “had they asked basic questions right from the start.”
Mr. Sell Bigpolicy is one of tens of thousands of financial advisers working
hand-in-hand with insurance companies to market themselves to older Americans
using impressive sounding credentials.
Many of these titles can be earned in just a few days from businesses concerned
only with the bottom line and sound similar to established credentials that
require years of study, difficult tests and extensive background checks.
Many graduates of these short programs say they only want to help older
Americans. But they are frequently dispensing financial counsel that they are
not qualified to offer, advocates for the elderly say. And thousands of them
are paid by some of the country’s largest insurance companies to sell elderly
clients complicated investments that some economists say most retirees should
never own.
More than two dozen such programs now exist, and have enrolled more than 39,000
people over the last decade.
But some of the existing programs, which are often linked to insurance
companies, have taught agents to use abusive sales techniques, regulators say.
Some insurers have been listed as sponsors at seminars with names like the Million
Dollar Academy, where thousands of sales representatives were advised to scare
retirees by saying, “I am all that stands between you and potential
catastrophic loss.” Other seminars instructed agents to “drive a wedge” between
retirees and their established advisors.
“The insurers are happy to turn a blind eye to what salesmen are doing, as long
as they make a sale,” said Minnesota’s attorney general, Lori Swanson, who is
suing several companies, contending that their products are at best
inappropriate, and possibly worse.
Insurance companies say they investigate the backgrounds of all agents, screen
all sales to consumers to make sure they are appropriate, and have terminated
representatives using improper sales methods. Those companies said they were
not aware of abusive methods taught at any seminar they endorsed.
Some insurance companies say that they do not tolerate misrepresentation.
Another insurance company, in a statement, said “Any evidence of sales agent
misconduct, without exception, results in immediate termination.”
Nonetheless, complaints over sales of insurance products have soared. In
particular, grievances have stemmed from annuity sales. Obviously, occasionally
a buyer of a product buys it without a full understanding of the product. If
the product does not perform as expected, possibly because the stock market
went down, the buyer may have a selective memory failure. The buyer can then
complain to the insurance company, among other places. If the salesperson sold
in good faith, and the product was appropriate, sometimes the buyer may still
have recourse. Is this fair?
Over one third of all cases of financial exploitation of the elderly involve
annuities, according to the North American Securities Administrators
Association, a regulatory group [EM1]. Hundreds of lawsuits have been filed
against insurers over annuity sales to the elderly. A judge in Minnesota ruled
in 2007 that just one class action suit against a large insurance company could
encompass as many as 400,000 plaintiffs. Do all of the plaintiffs deserve to be
compensated? Who ends up with much of the money if the lawsuit is won? If you
do not know the answer to the last question, ask yourself if it is a
coincidence that huge class action litigation attracts prestigious large law
firms like a picnic does flies.
In interviews, sales agents who have been accused of wrongdoing invariably say
that they followed the guidance of insurance companies.
But consider, for example, that the vast majority of annuity sales do not offer
immediate payouts. Instead, they require buyers to wait as long as 10 years to
begin receiving benefits. Such contracts, known as deferred annuities, made up
97% of all annuity sales last year.
Deferred annuities, however, offer sales agents the richest commissions, which
is one reason so many of them are sold every year, regulators say. Selling a
$100,000 deferred annuity, for example, typically earns a sales representative
$9,000, though buyers are sometimes prohibited from touching much of their
money for 10 years without incurring penalties. No-load annuities, may feature
little or no commission, and may not have penalties. Annuities with shorter tie
ups carry much smaller commissions.
In summation, if it is true that sales agents who push large deferred annuities
with long tie up periods are only following company guidance, that may be as
negative a commentary on the companies as on the agents.
“An annuity that pays a fixed immediate income offers seniors a lot of
security,” said Jean Setzfand, director of financial security with AARP. “But a
deferred annuity is almost always a bad idea for a retiree.”
Those concerns, however, have not stopped many insurance agents from
aggressively selling deferred annuities.
Some of those agents have been trained by organizations that require only a few
days of classroom instruction.
For instance, the 1,200 people who have enrolled in a different senior adviser
program spent only four days in a classroom, according to a spokesman.
The organization which gave Mr. Sell Bigpolicy his credentials is a for-profit
company that has trained 24,000 enrollees since it was started in 1997.
The company that gave Mr. Sell Bigpolicy his designation has a course that
lasts three and a half days, according to recent participants, and includes
uplifting lectures, overviews on the sociology of aging and exercises including
peering through vision-blurring lenses to get a sense of how some clients’
eyesight can falter.
Regulatory authorities tend to be ultra critical of these programs.
“There are limitless phrases being coined to convey an expertise in senior
finances,” said Massachusetts securities regulator William F. Galvin. “Most of
them seem designed to trick seniors into listening to swindlers.”
Most insurance salespeople are honorable and are not swindlers. As in most
lines of work, however, not everyone is honorable and does the correct thing.
A representative for the organization said the program’s courses and questions
were written and evaluated by experts. In a statement, the company said its
training was intended to supplement, not substitute for, professional
credentials and education. The organization began asking titleholders in March
to disclose to potential clients that designation alone does not imply
expertise in financial, health or social matters.
Despite that disclaimer, the company has trained thousands of insurance agents
and other financial advisors. And about 100 companies, many of them insurers,
endorse the designation, said a spokesman for the group.
Soon after Mr. Sell Bigpolicy received his designation, Mr. Sell Bigpolicy
started displaying it in ads and on letters inviting retirees to seminars over
free chicken lunches, according to Massachusetts regulators.
At those meetings, Mr. Sell Bigpolicy told retirees that they were perilously
close to financial calamity, according to Massachusetts regulators and
attendees. He warned them that the stock market’s ability to offset inflation
was “a big lie,” according to documents collected by those regulators. Banks
contained “weapons of mass destruction,” read one handout.
But annuities, Mr. Sell Bigpolicy noted, offered guaranteed returns, attendees
said. At the time, he was authorized to sell annuities offered by more than two
dozen insurance companies, state records show.
Mr. Sell Bigpolicy’s script, Massachusetts regulators say, used materials from
another training company that had more than a dozen insurers as “partners” or
“carriers” on the company’s Web site.
There are a few dozen companies, like the training company in question, that
teach sales agents how to find retirees willing to buy annuities.
Some insurance companies say they endorse only training programs that are
committed to ethical sales tactics and that their support is often limited to
providing speakers or marketing materials. But they acknowledge that they
cannot always police how agents present themselves.
Dozens of lawsuits against insurers contend that those companies failed to
adequately supervise sales agents who sold inappropriate annuities to aging
clients and then did not act when buyers complained.
Some insurers, in court filings and interviews, say they spend millions of
dollars supervising sales agents and investigating consumer complaints.
Some insurance companies, and some state regulators, have changed the rules
governing how annuity sales agents can behave.
This year, Massachusetts prohibited most financial advisers from using some
titles unless they were recognized by an accreditation organization or the
state. In 2007, two of the largest insurers told sales agents they could not
use the designation of WE DO NOT WANT TO MENTION THE NAME senior adviser.
But in most other states and at most insurance companies, sales representatives
can use any title they choose.
For his part, Mr. Sell Big Policy, while he awaits the outcome of his case, is
still approved to sell annuities by more than two dozen insurers, according to
state records. This is not an isolated example, which does not mean that an
accountant should think that all insurance salespeople behave like this sales
person. This example, in differing versions, does happen. If the customer
consulted his or her accountant, which admittedly most do not, the above
example, or something like it, may not happen.
Lance Wallach, National Society of Accountants Speaker of the Year and member
of the AICPA faculty of teaching professionals, is a frequent speaker on
retirement plans, abusive tax shelters, financial, international tax, and
estate planning. He writes about 412(i), 419, Section79, FBAR and captive
insurance plans. He speaks at more than ten conventions annually, writes for
more than 50 publications, is quoted regularly in the press and has been
featured on television and radio financial talk shows including NBC, National
Public Radio’s “All Things Considered” and others. Lance has written numerous
books including “Protecting Clients from Fraud, Incompetence and Scams,”
published by John Wiley and Sons, Bisk Education’s “CPA’s Guide to Life
Insurance and Federal Estate and Gift Taxation,” as well as the AICPA
best-selling books, including “Avoiding Circular 230 Malpractice Traps and
Common Abusive Small Business Hot Spots.” He does expert witness testimony and
has never lost a case. Contact him at 516.938.5007,
wallachinc@gmail.com or visit www.taxadvisorexpert.com.
The information provided herein is not intended as legal,
accounting, financial or any type of advice for any specific individual or
other entity. You should contact an appropriate professional for any such advice.
While every effort has been made to ensure the accuracy of this publication,
it is not intended to provide legal advice as individual situations will differ
and should be discussed with an expert and/or lawyer. For specific technical or
legal advice on the information provided and related topics, please contact the
author.
Call Lance Wallach, at (516) 938-5007