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April 02, 2006 at 04:00 PM
Annuities played a prominent role in the written testimony for a recent hearing on protecting seniors from investment fraud.
The hearing as a whole, organized by the Senate Committee on Aging, examined methods con artists use to persuade older Americans to invest in a wide range of fraudulent investments, such as fake promissory notes and fake real estate investment programs.
A victim and convicted con artist who spoke talked about schemes that had no relationship to insurance or annuities.
But the three securities regulators who testified at the hearing all devoted about 10% to 20% of their written testimony to emphasizing the need to keep seniors from buying unsuitable annuities.
Some financial services sales representatives are luring seniors to seminars with free meals, then pitching equity-indexed annuities and variable annuities as low-risk or no-risk products, without adequately explaining possible risks, said Patricia Struck, Wisconsin securities division administrator and president of the North American Securities Administrators Association, Washington.
“Equity-indexed annuities are complex insurance products with high commissions and long holding periods…which make them unsuitable for many older investors,” Struck said, according to a written version of her remarks.
Similarly, although variable annuities “are legitimate and suitable investments for some,” regulators believe many investors are not being told about high surrender charges for early withdrawals, the potential of exposure to investment market fluctuations, and the “steep sales commissions” agents earn when they move investors into variable annuities, Struck said.
Struck also attacked “senior specialist” designation programs that provide little but limited sales training.
