This is one of the most incredible stories I’ve ever come across since entering the financial world as a young stockbroker in the early 1980s. I’d thought I’d heard everything, but this one just blew me away.
The Annuity Letter of “Understanding”
Don had inherited several hundred thousand dollars from his father’s estate, and sought the advice of a local broker from a major firm who convinced him to buy a variable annuity, describing the product in glowing terms and promising both the chance for stock-market gains, as well as a rock-solid guarantee of minimum interest every year. A trusting but meticulous man, Don faithfully took notes on the glory of this product, and returned a day or so later with a very specific document which recorded his understanding of the investment’s characteristics and guarantees. The letter included the ways he was told he could profit, along with a schedule of the minimum guaranteed values for each year in the future that he could expect, if the markets did not cooperate and all he got was the guaranteed interest.
I even have a copy of the letter, and it says, in part, “that annually the account is guaranteed to increase by either 5% or, if the net increase of the portfolio (high water mark) is higher, than that amount will be the new guaranteed increase.” Later in the letter, Don says, “if this is not correct, please correct any misunderstanding.”
Of course, if true, such a guarantee would be a wonder of the financial world and a great thing to have. Unfortunately, such a thing is not possible, and is, in fact, a contradiction in terms.
But this is how the broker sold it, and this is the understanding that induced Don to buy. Moreover, Don wrote all this stuff down to make sure he got it right, and brought it to the broker.
The broker agreed that the information in the letter was right.
Don asked him to sign off on the letter.
The broker said he would have to show it to his branch manager first before he could sign it, and went away.
On returning, he said the manager agreed that it was correct, and the broker signed the letter of guarantee.
Such a guarantee is of course illegal as all get out. As unbelievable as the foregoing has been, what comes next will truly chill you.
The broker was terminated shortly thereafter, for unknown reasons.
Naturally, instead of the guaranteed increases, the value of the account plunged soon after purchase, on the order of 40%!
Don, of course, seeing values plummet on his statements, inquired as to the guarantee.
The new branch manager said that the broker “should not have done that” and passed the case on to headquarters. Remember that we are talking about a huge, very major brokerage firm here.
Don got no response.
He complained to the SEC.
Nothing.
He had a lawyer buddy write a letter to the firm.
It went unanswered.
Don wrote a letter himself to the firm.
This was finally answered by a lady in New York who referenced the guarantee letter and said that clearly the broker’s “intention” could not have been to guarantee anything, since such a thing was impossible. She went on to wish Don a nice day and the best with his investment.
Remember that Don was in procession of a signed, written guarantee, with very specific English! “Intention” played no part! The broker was the agent of the firm, and had the apparent authority (bolstered by the manager’s “check”) to issue such a guarantee, to which the firm as the agent’s principal would be bound.
Don’t Give Up
Despite all this, the brokerage firm behaved as if all of this never occurred, and clearly was hoping to stonewall Don until he just gave up and went away.
In desperation, Don saw our ad for a “Got Annuities?’ workshop, and came in. I called the lady in New York repeatedly with Don, and she constantly refused to take the calls. We have helped him draft a more effective letter of complaint, and we are confident that he will get all his money back, with specified interest.
His case is still pending.
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.
