The debate in the market place for years is should retiree’s put their retirement funds in an annuity or in the marketplace? The arguments for not putting money in an annuity, using a company 401(k) market fund to “grow” the asset to ensure a hedge against inflation and of course avoid what is presented as those pesky high fees that are said to accompany an annuity.
More and more we are now reading of horror stories of retirees suffering as their 401(k) rollover enriches brokers while leaving the consumer with less and less of their original balance. A recent story in Bloomberg titled “Retirees Suffer as 401(k) Rollover Boom Enriches Brokers” highlights what looks like a growing trend. The article tells stories of people like Kathleen Tarr who was viewed by AT&T Inc. (T) employees as “their de facto 401(k) expert.” They followed her advice after her visits to their homes and offices where she reviewed their retirement plans as they called up balances on computer screens.
Tarr, in actuality worked for Royal Alliance Associates, a brokerage firm owned by insurer American International Group Inc., (AIG) according to the Bloomberg article. The article states Tarr and her business partner reaped hundreds of thousands of dollars a year in commissions and trips to the Bahamas and Florida resorts. During this time the article says 37 of their clients filed complaints against her, referencing the Financial Industry Regulatory Authority.
Some clients like Maria Lew, a former AT&T administrative assistant saw her balance fall from $390k to $100k, resulting in days where she “go to sleep and I can’t stop thinking about it.”
The Bloomberg article outlines the process where retirees are contacted via a cold call when they leave their savings in 401(k) plans and financial firms “entice them with cold calls, internet ads, storefront signs and cash incentives to switch to IRA’s.”
You can read the article and make your own determination. However, I find some irony in the widely covered Glenn Neasham case out of California. You might remember Glenn Neasham received a referral from an existing client. He met with Fran Schuber on more than one occasion, he completed a carrier-approved fact finder, suitability and other forms and an annuity contract. He then submitted the state approved application along with the required suitability forms, and Fran Schuber’s check, to Allianz, which reviewed the paperwork, determined Fran Schuber’s suitability, in compliance with state law and industry practice, and issued the policy.
Glenn Neasham helped Fran Schuber reposition $175,000 in funds she had in a CD account with the Savings Bank of Mendocino into a MasterDex 10, with an average 8 percent in equity options, at the time. It offered 10 percent free withdrawals, providing ample liquidity for Fran Schuber’s situation, policy loan provisions and a 10 percent bonus paid up front on any premiums added, anytime in the first five policy years.
(You can read more about his case in an article written Nov, 2013) Fran Schuber had enough liquidity to meet her needs in the form of $100,000 in other accounts along with $17,500 per year for at least five years.
So, what irony am I talking about? In the Bloomberg article 37 complaints were filed against Tarr by her clients. A three-month Bloomberg investigation found that former employees at major companies such as Palo Alto, California-based Hewlett-Packard (HPQ) Co. and United Parcel Service Inc., as well as AT&T, have complained that sales representatives lured them into rolling over their 401(k) nest eggs into unsuitable IRA investments. Bloomberg found that these paid higher fees in the brokerage accounts than they would have in their AT&T plan. The investigation was based on interviews with retirees and brokers, confidential arbitration records and other documents.
The 37 complaints are still unresolved while on Dec. 6, 2010, Lake County (California) District Attorney John Hopkins signed a criminal complaint charging Glenn Neasham with “committed theft and embezzlement – financial abuse – with respect to an elder and dependent (sic) adult.” On Oct. 23, 2011 Glenn Neasham was found guilty by a 12-person jury of a single count of felony theft, for selling an annuity to an elderly woman.
The contrast between the experiences of the retiree’s in the Bloomberg article and the Neasham case are sticking, at least to me. Glenn Neasham appealed his conviction and recently the Court of Appeal of the State of California – First Appellate District, Division Three in a decision written by Justice Stuart Pollak found: