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Seniors in your community may be
targets of financial charlatans. I’ve received a number of
disturbing reports recently from seniors about the abusive tactics
of some advisors. Their actions are not only unethical, but they
border on the criminal. You must be aware of these despicable
tactics so you and your nest egg are protected.
A charlatan is defined as one who attracts customers with deceptive
tricks. They look for easy marks and quick profit. Equity Indexed
Annuities have a high commission and a sales pitch that is enticing
to risk-averse seniors, so they are often used by these shady
advisors.
Even though I am against Equity Indexed Annuities, I do not believe
that everyone who sells them is a charlatan. Many advisors are
trying to offer an investment that they believe is in their client’s
best interest. There are a large number of advisors, though, who are
unscrupulously taking advantage of their client’s trust.
Warning 1: Any advisor who recommends 100% of your investable assets
be placed in ANY investment or investment category is looking after
their own interests, not yours. Beware of following any of their
recommendations.
For example, John (not his real name) is 80 years old and lives in a
retirement community in south Texas. There are over 2,000 other
retirees in his community and 5 similar communities next to it.
Since seniors and retirees are the ones with money to invest, these
communities are heavily targeted by advisors in search of a
commission.
These advisors start by offering free pizza and a seminar at the
local community center. Who doesn’t like free food, especially when
you’re living on a fixed income? Lots of folks enjoy the food and
listen to the pitch.
In John’s community, these charlatans then started going
door-to-door pushing an investment they portray as a way to avoid
income tax, avoid probate, and earn a safe, risk-free return. John,
like his neighbors, was skeptical at first. It sounded too good to
be true.
The advisors were relentless. They kept showing up at his house,
calling him on the phone and wooing him with the wonderful benefits
he would enjoy. In the end, they convinced him he needed to invest
ALL of his money into an annuity contract lasting 10 years. He sold
stock he’d held for decades and invested that so he would pay less
income tax.
These charlatans used John’s fear of paying taxes and losing money
in the market to trick him into a decision that he already regrets.
They seemed so genuine. The more they talked the more confused John
became. Surely any second thoughts he was having were just his
fault.
Warning 2: Never sign any paperwork without first reading it and
taking the time to fully understand everything it says. If you are
confused, seek a second opinion.
John signed their paperwork—and wasn’t even aware of what he was
signing. They didn’t give him time to read it and, not being a
sophisticated investor, he wouldn’t have understood it if he had.
The papers he signed are designed to protect the advisor from legal
liability for their actions. Those papers place all the
responsibility on the investor and are like a get-out-of-jail-free
card for the advisor.
The consequences of John’s decision are painful and difficult. By
selling stocks he’d owned for years, he will now end up paying
capital gains taxes he otherwise wouldn’t have had to. He is
currently in the lowest tax bracket anyway. In the long run, he will
end up paying more in taxes with the annuity, not less!
Now John has very little access to his money. Even if he dies, it is
likely his heirs will have to pay significant surrender penalties to
get money out of the annuity. If John needs or wants his money
several years down the road, there is a good chance he will get back
less than he invested because of these penalties.
This unethical behavior would not be tolerated by the SEC. But
Equity Indexed Annuities aren’t regulated by the federal government.
That lack of oversight opens the door for financial charlatans to
take advantage of unsuspecting seniors.
If you suspect you or someone you care about is being a target of
such schemes, please contact me for free, unbiased advice on what
you can do at jeff@guardingyourwealth.com.
Mr. Voudrie is a Certified Financial Planner, nationally syndicated
columnist and President of Legacy Planning Group, Inc. in Johnson
City, TN. He can be reached toll-free at 1-877-827-1463.
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