November 13, 2008
I am a member of the Financial Planning Association, former president of its Tampa Bay Chapter and I support the Equity-Indexed Annuity Rule.
I am a Certified Financial Planner licensee, a registered general securities principal and a licensed life insurance agent with over 30 years experience, most of which has been with retired clients. My office is located in a large retirement community in the Tampa Bay area. Retirees, particularly those over 70 years of age, have become targets of aggressive sales practices by life insurance agents selling equity-indexed annuities. Most of these agents are not securities licensed, yet they recommend that retirees liquidate their securities to purchase their annuities which have very high and very long surrender charges (and pay the agents enormous commissions).
Since equity indexed annuities determine the rate of return in arrears, many do not provide a client statement until after the end of the policy year. Often, this is the first time purchasers realize the size of the penalties for liquidating, long past their “free look” period provided by state law has expired.
As a respected professional in my community, I am often approached by retirees who have been sold these annuities inappropriately and are looking for a way out once they have discovered the pitfalls of their “investment”.
Recently I had a couple in their late 70s come to the office. After attending a free-lunch seminar by an insurance agent who billed himself as a “Certified Senior Advisor”, the agent had gone to their home and badgered them until they had signed over 100% of their liquid assets which were placed in four contracts each of which had a 15 year surrender penalty and very limited liquidity before then (5% annual free withdrawals to a maximum aggregate of 25% of premium paid). They were in tears. The man had been diagnosed with Alzheimer’s and the woman was a cancer patient. With my help they contacted the insurance company and requested rescission of their purchases based on unsuitability of the sales. The insurance company declined their request so I helped them contact the Florida Department of Financial Services. We spoke to an investigator who said he had stacks of similar complaints in his office with no apparent plan to assist the complainants. Realizing that working with the department would get us nowhere, we called the insurance company and told them we had just spoken with the Department of Financial Services and were ready to FedEx them all the details of the transactions but that before doing so we wanted to give them one last chance to do the right thing. They relented and returned the premium (but no interest for the 14 months that they held $250,000 of the people’s funds.
I can’t speak for other states, but clearly Florida lacks the resources to police the sale of equity indexed annuities by non-securities licensed agents. For this reason, these annuities, which are sold as investments, must be federally regulated.
Gary W. Cotter, CFP®
COTTER FINANCIAL