This is a story we drew from for one of the very first chapters.
Fred and Ethyl, both in their late 60s, went to a seminar at the local library, and would end up getting hard-pitched on a super-high commission annuity from a young fellow they described as a “very nice man,” whom we’ll call Ralph.
Ralph had some letters after his name (though when I investigated one of these “designations” I found the coursework to consist mostly of life insurance and annuities sales and marketing techniques), and advertised his seminars in the local paper. After 9/11, his ads took on a distinctly patriotic flair, swathed in flags, and touting annuities as being “patriotic” for patriotic seniors, and stating that they were somehow backed by the U. S. government (this is specifically prohibited by Florida statute).
But the ad looked good to Fred and Ethyl, and they went to the seminar, where they completed the coloring-book-level workbook to help them focus on their goals. One of the pages showed a couple and their goals surrounded by cartoon alligators, and Ralph referred to the “mutual fund alligators,” among others.
Ralph also claimed to have written a book, and gave a copy to Fred and Ethyl. The book turned out to be mostly ghostwritten and published by a company that was paid by life insurance agents to customize such books for them. The agent would get his or her name and picture on the book, and got to write or be interviewed for some custom material, which made up a very small part of the book.
Fred and Ethyl were pretty impressed by the book.
A “Conservative” Annuity
It seems that Fred had inherited a pretty good chunk from his aunt, and was wondering what to do with it. This was the first real money that the couple had seen; before the inheritance, they had a small bank balance and got by on Social Security.
Ralph, true to form, suggested that they take the entire inheritance and invest it in his “conservative” equity index annuity.
This is the one, you’ll remember, with the 15-year surrender charge schedule (25% for the first five years) and the only 70%-of-principal guarantee. The effective surrender charge was damned-near 50% the first year. The surrender charges (still over 12% in the tenth year) would not be completely gone until the couple was in their early 80s. And while the product was touted as offering an opportunity to participate in the performance of the stock market, the actual contract could allow the insurance company to pay as little as 6% per year, no matter how high the market went.
After these folks called me to their house, I sat at their table and read the fine print to them. As usual, they had heard only the syrup from Ralph’s tongue, and saw only the big pictures of the happy elderly couples on the brochure.
Ralph called them, yet again, while I was there. Fred wondered why he was so anxious, and I jested that he had probably already bought the car.
I did not know until the next morning just how high the commission would be: 17%, or $51,000 on this sale.
What Happened to the Money?
Fortunately, Fred and Ethyl got lucky and narrowly eluded the shiny, powerful trap. They wound up keeping their money where it was. Sadly, too many do not.
This is the story that really inspired our series of “Got Annuities?” workshops, and, ultimately, this report.
