Judy came to one of our “Got Annuities?” workshops in Jacksonville, driving over two hours to get to the first scheduled session, even though one much closer would be held a day later. But she was nearly frantic, and could hardly wait.
She was also simmering mad.
The Annuity She Never Wanted…
Judy came up to me after the workshop, wanting to learn if she could do anything about the annuity she never wanted, but had unwittingly purchased for something like a half-million dollars. It seems that she had agreed to invest with a representative of the stock-brokerage arm of a major life insurance company and had only learned that a variable annuity was the vehicle when the contract arrived in the mail some weeks after she agreed to the transaction. She claimed that the broker had referred to the investment merely as “the product,” and had never told her that it was an annuity.
Later on, she came in with her husband, a prominent political figure in a small Florida city, who is also a practicing attorney. They are both intelligent people with substantial net worth. He reiterated her contention that they were never told that their investment would be in an annuity during the sales process, which spanned many months. They also said that they had never received a prospectus, and one was not to be found in their file on the product, even though Judy’s husband claimed she was a meticulous record-keeper.
Apparently, they had received a large lump sum from the sale of real estate and put the cash in a money market account with the broker, who was referred by a family member. They did not invest it right away, they said, because the “product was not ready,” according to the broker. This is difficult to fathom, since hundreds of investment vehicles (myriad variable annuity products among them) were certainly available at the time they wrote their check. We can only surmise that this new annuity product had some special commission, contest value, or other allure for the broker, which is why he waited and kept them out of the intended securities exposure for an inexcusable time.
In answer to specific questions by the lawyer and his wife, the broker said that he would make “next to nothing,” when, in reality, the commission was something on the order of $40,000.
Moreover, the couple was concerned about fees and charges should they choose to access their money, and specifically asked about them. They were told that there would be no charges or penalties if they chose to withdraw the entire amount at a specified date that was important to them. In actuality, the surrender charge on their target date was about $50,000, according to the contract.
A “Miscommunication”?
Before coming in, Judy had read this in the policy she got in the mail, and called the broker about it. He told her that she had misunderstood the document, and that there would, in fact, be no charges, so she should not worry and send in the policy delivery receipt.
As it turned out, the broker’s answer was entirely factual, but completely unrelated to the question they had asked! Unfortunately, the answer (dealing with excise taxes) had nothing to do with the question the couple had asked, and amounted to unconscionable omission, if not outright misrepresentation. Whether this was due to ignorance or deceit, of course, does not matter.
They had also asked, they said, about other fees and charges for the investment, and were told that they were so nominal as to be insignificant. Of course, the insurance and mutual funds charges were on the order of several percent per year, or over $15,000 annually for these folks.
Both the politician and his wife were quite angry when they learned of the magnitude of the “miscommunication” to which they had been subjected, and asked me to help them to file a formal complaint, requesting the return of their money.
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.
