California’s new law protecting the elderly from dishonest financial product salespeople goes into effect January 1, 2012
The LA Times has reported starting January 1, 2012 California’s new law protecting the elderly from dishonest financial product salespeople goes into effect. The long overdue law, designed to protect seniors from purchasing unneeded annuities, requires insurers to verify that the annuity will deliver the promised benefit to the annuitant.
Annuities are financial products sold by insurance companies used to grow money in order to give the owner a constant stream of payments in the future. Annuities can be paid for a specific period of time such as 20 years or during the annuity owner's life time. Often these low-risk products are discredited by financial experts because of low returns and excessive fees.
Recently, some unscrupulous agents have been aggressively marketing annuities to unsophisticated seniors that will not provide them with the financial security the seniors crave. This legislation is an attempt by California to guard seniors from these aggressive tactics by requiring insurers to determine based upon the buyer’s age, income, liquidity needs as well as financial goals whether the product will provide the desired result. In addition, the seller must prove that the annuity has a tangible net benefit to the buyer.
The law also gives the state insurance commissioner the ability to pull agent’s licenses, impose fines and restitution.
Unfortunately, the aggressive marketing to seniors is not exclusive to California. In recent months, Florida and Illinois have revoked the licenses of individuals who sold unsuitable annuities to elderly clients.
In every aspect of our daily life we come face to face with fine print. From service agreements to advertisements, you are sure to see fine print containing hidden fees, restrictions or reoccurring charges. Consequently, even purchases that on the surface seem minor can have huge affect on our finances.
Why don’t people read?
Whether it is lack of time or inconvenience, many people are too busy to read the details of contracts, agreements or advertisements. Others are too embarrassed too admit they don’t understand what they are reading. Businesses outline the details of their offer in the fine print including hidden charges. The fine print is what protects their interest.
What happens if you don’t read?
Unfortunately, if you sign a contract, agree to terms or buy something without reading the fine print you are still bound by its terms. You are giving your rights to the other party. If there is a dispute later, you will lose especially if the agreement contains an arbitration clause, which prevents you for suing.
Service contracts-Cell phone carriers, cable companies and many other service providers have early termination fees if you decide to discontinue service before the contract ends.
Free trials-Sometimes you are offered a free trial of a vitamin or beauty aid. In exchange, you are subjected to service fees, shipping or reoccurring billing that requires you to call to cancel.
Leases-Leases are no fun. They restrict your use of the apartment, define how you can alter the apartment (no nails in the walls) or levy fees for bounced checks as well as breaking the lease.
Memberships-Many times they entice you with a free item such as a credit report, book or movie. Other times, it is a discounted item that lures you in. Regrettably you agree to a service with reoccurring billing or you are required to buy several items at full price before you can end the contract.
Restocking fees-Sometimes, if you want to return the item, you are subjected to a restocking fee. This is common in consumer electronics, equipment as well as furniture where the fees can be as much as 50%.
Software Licenses-Most people don’t read them but they typically limit the software company’s liability, define acceptable use as well as define restrictions. To demonstrate that most people don’t read the terms of software agreements; Playstation in the UK added a clause where you agreed to sell your soul. It turns out 1 in 10 people didn’t bother to read it and sold their soul to Playstation.
Financial Documents-If you don’t read your financial documents you could be in for a big surprise. Sometimes interest rates change after a trial period and other times you don’t qualify for those low interest rates after all. Credit cards, checking accounts, certificate of deposits (CD), annuities and IRA accounts can have service fees, penalties and other charges hidden in the fine print. Even some structured settlement purchasers may hide additional fees in their contracts.
What should you do?
Read everything thoroughly or have a lawyer or trusted advisor read it for you. Ask questions. Make sure you understand everything. Make sure the terms are clearly spelled out. Do the math? Does everything add up to what they told you? Make sure there are no mistakes such as the wrong price or a higher rate. Always retain a copy of the contract for your records and know what you are signing. If the salesperson or other employees try to rush you along, won't show you the contract or give you time to read it-they're hiding something.
The Tampa Business Journal is reporting that Florida has revoked the insurance licenses of John Daniel Mueller of Sarasota. Mueller was apparently involved in annuity scheme that robbed seniors of thousands of dollars. Mueller was a target of an investigation by the Department of Financial Services’ Division of Agent and Agency Services after they received complaints that he sold unsuitable annuities to several elderly clients between 2002 and 2008. Mueller would drop in unexpectedly on unprepared elderly consumers and use false statements to mislead them or leave out important information regarding insurance products. Many of the seniors lost more than $50,000 leaving them unable to pay for medical care as well as living expenses.
Mueller’s victims typically were elderly with limited investment experience and had limited communication skills due either to a medical condition or being foreign-born. The victims readily signed their names to voluminous documents without reading them. Many of the victims also had liquid assets or other annuities. As a result, they suffered hefty surrender penalties on the annuities they cashed out or exchanged for the annuity products Mueller sold them. They were misled into believing that such losses would be offset by "bonus" payments on the newly purchased annuities.
Annuities fraud against the elderly has been a focus of the news lately as The Illinois Securities Department revoked the licenses of two investment adviser representatives for inappropriately liquidating clients' annuities to fund the purchase of fixed indexed annuities. If you are considering purchasing investment products, please do your research by checking with the Better Business Bureau and State Attorney General's Office to see if there have been complaints regarding the company you are looking to do business with.