Free dinner may prove costly
Equity-indexed annuities prey on seniors' worries
By SHARON KERR Staff Writer

Seniors are a vulnerable group when it comes to financial advice, and they have every reason to be nervous about their future. Boomers born between 1946 and 1964 are old enough to remember when $5 at the gas station was enough to "fill-er up" and get change, and a dime would buy a Coke.

Have they saved enough for retirement? How much is enough? What if things change (and don't they always)?

Surveys say most boomers have not saved enough, and are worried that Social Security could go belly-up before they collect.

Financial advisor Marcus Dickerson at Edward Jones is concerned that Jasper seniors may be enticed by scam artists preying on their worries at "investment seminars" that promise security.

AARP magazine has warned people about the "postcard in the mail" that invites you to a free dinner, and Dateline NBC ran a segment April 13 on "Tricks of the Trade" about what annuity salesmen promise when they think they are alone with a senior.

"It's crucial that our citizens be kept informed of any and all financial scams that are occurring locally," Dickerson said.

What the out-of-town companies are pushing are equity-indexed annuities, EIA, and the pitch according to AARP is designed to scare someone into thinking their money is at risk and only an annuity will protect them.

"Annuities are not bad products," Dickerson said. "If you are under 45, they may be a good way to start saving for retirement, but you need to look at any product and compare."

The problem is that annuities can have an extremely long surrender period- basically, that means your money is inaccessible for many years and you can only get to it by paying a penalty (up to 15 percent), and you will pay more in taxes because it is taxed as ordinary income, not at the lower capital gains rate.

"They are complicated products," Dickerson said, "and they are a very inefficient way to pass your assets on to your beneficiaries."

Wild wild west

The EIA industry is largely unregulated by national agencies. An annuity is a contract between you and an insurance company; you make payments and the insurer agrees to make periodic payments back to you beginning at some future date. The contract is as good as the insurance company's ability to pay.

EIAs are structured to avoid being registered or monitored by the SEC and National Association of Securities Dealers, and the FDIC does not protect your money.

Commissions or "finder's fees" for selling an EIA can run as high as 15 percent, according to Dickerson, so if you are taking your IRA and your 401k, maybe $250,000, and putting them into an EIA, that could be $37,500 that the agent is paid for selling the annuity.

A Wall Street Journal special report on "Annuity Truth" takes these quotes from a course at the nowdefunct Annuity University, Annuities 101, how to sell to senior citizens:

"There's the technical answer, and the senior answer... Treat them like blind 12-year-olds... You're there to solve their problems, but you have to create those problems first. No problem, no sale."

When Dateline NBC took their hidden cameras to a sales pitch by an annuity salesman, they caught him saying, "I help my clients to protect their life savings from the nursing home and Medicaid seizure of their assets."

Seniors believe these scare tactics because the person pitching them may have puffed up credentials and an alphabet soup of letters behind their name, such as Certified Senior Advisor (CSA). At Annuity U, you could buy instant fame; put your name on a book as a respected financial author, or get a recording of a "nationally syndicated" radio show in which you are interviewed as the expert on investments.

Shady salesmen target seniors and play on their emotions to lock their life savings in funds they may never live to receive, or pay stiff penalties not disclosed in the sales pitch for early withdrawal, according to the Dateline NBC story.

The regulators

Each state has different rules regulating its insurance industry. If you think you have been sold a product that is not appropriate to your needs, the number in Texas to file a complaint is 1- 800-252-3439. Dickerson said there is no time limit; you may not discover you have a problem until you have an emergency and unexpectedly need to access your investment.

"At Edward Jones we don't sell EIAs because we don't feel this is in the best interest of our clients," Dickerson said. "We feel there are too many high quality investments that don't require you to lock your money up for several years."

He said the regulators will consider the suitability of the sale, and are sympathetic to consumers who feel they were tricked or not given full disclosure when they purchased an annuity.

"A true financial professional looks at the entire financial picture before recommending an investment. There is no one-size fits all," Dickerson said, but clearly all plans are not equal.

Dickerson said he's heard of one case recently where a client could not access a death benefit without paying surrender fees.

"One tip is that if you go to a seminar and they offer an EIA with a free bonus, eat the meal and leave," Dickerson said.

The "up-front bonus" that is sometimes offered goes like this: if you invest $100,000 today, we'll give you a 10 percent signing bonus. Dickerson said the bonus is anything but free money; the enticement the insurance company offers is something they recoup through higher surrender fees and longer contract periods.

Finding the right fit

Dickerson was reluctant at first to talk about the industry in which he works, but felt that senior citizens are at risk from a few companies who are trying to take advantage.

"I'm a former Texas state trooper, and though I now make a living by helping the people of our community retire and stay retired, I remain equally dedicated to protecting our community, especially those who are most vulnerable," Dickerson said.

You can research investment companies online at www.finra.org (Financial Industry Regulatory Authority), and www.nasdr.com, the National Association of Securities Dealers.

Easy to understand information is also available at www.annuitytruth.org, and H.E.L.P. (Healthcare and Elder Law Programs), a nonprofit education and counseling center, www.help4srs.org.

The short version, according to AARP, is the older you are, the less likely an annuity is right for you.