Beatrice has been a client for many years now. Her husband, Jack, used to handle most of the finances, but since he died, Bea has dealt with me directly.
Fortunately, Bea is quite well off. Between Jack’s retirement plan and his life insurance proceeds, she will enjoy a very comfortable retirement, and be able to leave her three sons a very substantial inheritance. All of this is prudently invested in no-load funds which my firm manages using our exclusive ISIS® process.
A Rat’s Nest of Annuities
So where’s the annuity story? When Bea finally retired from teaching, she brought me information on a bunch of products she’d never told me about before. Probably, she did not know herself what she had, had stuffed all the paper in a box, and only was motivated to have me untangle the rat’s nest by the seminal event of her retirement.
For whatever reason, there we finally sat, with a pile of annuities contracts, annual statements, and spiffy brochures covering my conference table. One by one, I arranged the paper by product, putting the statements she had with the respective annuity policy. After a few minutes, a chilling pattern began to emerge.
Every policy was worthless.
Each had been surrendered within a year or so of purchase, and the surrender proceeds transferred to another TSA policy.
Although Bea was contributing money each year, values continued to plunge as the surrender charges whacked down the value with every churn.
Obviously, the agent profited from each switch, but Bea’s once-princely TSA balance had been whittled down to a mere $20K or so by the mid-90s, fifteen years into this game.
Then, the agent switched tactics: he had Bea cash out the last annuity, and put the proceeds into a high-commission viatical product. You remember those, where life insurance policies on the terminally ill were bundled and pawned off as investments? Then, better AIDS therapy came out and viaticals died, instead of the AIDS patients who had sold their life insurance policies.
Like a good knight, the agent got Bea out of the viatical with only a modest 25% loss, and had her plunk the shriveled remains into what turned out to be an illegal, unregistered bond issue, for a company which has since gone belly up.
And there, at the end of my review of this virtual library of documents, lay on the table the worthless smudge-mark that represented decades of Bea’s toil and saving for retirement. It reminded me of an old life insurance industry joke: “The definition of estate planning? Estate planning is the orderly conversion of estate assets into commission dollars.” That’s exactly what happened here.
The Annuity Agent’s Invitation
The agent who stole all this, by the way, still has a current life insurance sales license, and continues to peddle product. Bea asked me to call him, but not go so far as to help her prepare a formal complaint or chase him to court; she’s just not the suing type. The agent (who had merely changed corporations, not stripes) basically told me to sue him if I did not like what he had done. He brazenly even gave me his lawyer’s name and number! When I asked if he’d be willing to disgorge the commissions he had “earned” on the bad product he’s sold Bea, he refused, pleading his own problems.
I really wish that Bea had pursued this, if only to protect the hundreds of thousands of others this parasite may yet bilk. At least she did not wind up needing the money she’s saved for retirement. But I wonder how many other teachers are cheerfully welcoming shoppers to Wal-Mart in their old age, because of him, and others like him?
The preceding story is based on an actual situation and was shared by an investor we met in our professional practice. The names and non-material details have been changed to protect identities. The essential facts dealing with product representations and sales practices have been faithfully recorded.
This case history may amaze, amuse, and incite you. It may also inspire you to take action if you had a similar experience.
Most importantly, this case study may help you to realize that you are not alone, if you feel that you may have been subject to less-than-forthcoming annuities sales tactics. From the high number of cases we’ve seen like this, we can only infer this kind of monkey business is too common where these products are concerned.
Camarda offers free Portfolio Stress Tests which can include annuity cost/benefit analysis and rescue plans. To request one just click here – no cost or obligation.
