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Senior Abuses
Excerpts have been taken from New and Bestselling AICPA CPE Self-Study Courses

Best Sellers – March 2008

Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots, by Sid
Kess

Author/Moderator: Lance Wallach, CLU, CHFC,
Publisher: AICPA
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The following example is unfortunately not an isolated incident of an abusive sales practice.  If
accountants were consulted more often by their clients, maybe the following would never happen.

Senior citizen clients thought they had every reason to trust Mr. Sell BigPolicy as a financial
counselor.  The insurance agent had obtained a designation recognizing him as WE DO NOT
WANT TO MENTION THE NAME Senior Advisor.  He obtained this designation in 2002, a
credential he made sure to advertise on fliers sent to retirees.

He did not mention how easy it had been to get that title.

He had paid $1,095 for a correspondence course, then took a multiple-choice exam with
questions like, “Marketing can best be described as:” (The answer: “The process or technique of
promoting the sale or distribution of a product or service.”) Like more than 18,700 other applicants
since 1997, he passed.

Insurance companies, eager for sales representatives, embraced Mr. Sell Bigpolicy, as they have
thousands of other newly credentialed advisors.

The following year, multiple insurers paid him commissions totaling $720,000 as his business with
retirees soared.

But many of those sales came from steering older Americans into unwise investments, regulators
contend in a lawsuit.

Mr. Sell Bigpolicy denies all wrongdoing, but one of his clients – a 73-year-old widow caring for a
son with Down syndrome – said he tricked her into buying complicated insurance contracts that
left her unable to pay dental and home repair bills.

“His office was filled with things saying he was certified to help seniors,” said that client.  “The only
one he really helped was himself.”

Taking care of the finances of older Americans is a huge and potentially lucrative field, and the
market is growing.  Attracted by this market, many financial planners have shifted their focus to it –
and bring widely varying attitudes and professional training to the consultation table.  Training and
certification in financial gerontology is now being offered by at least four groups.  

The Securities and Exchange Commission does not regulate these groups – or any other groups
that provide financial planning certification, for that matter.  “The S.E.C. does not endorse any
professional designation,” said Susan Wyderko, director of the office of investor education of the
S.E.C.

The absence of government supervision is a problem, said Stephen Brobeck, executive director
of the Consumer Federation of America.  “There’s an opportunity for fraud,” he said, adding that
older people need to be very careful about whom they trust for advice.

Regardless of any planner’s credentials, the S.E.C. and consumer organizations say the best
approach is “buyers beware.”

Investors can learn how to check the background of a financial planner, including any disciplinary
actions, at the S.E.C.’s website, www.sec.gov.  Such background checks, along with a discussion
about an advisor’s approach to investing, are well advised before signing up with a planner.

“We see too many investors who might have avoided trouble,” Ms. Wyderko of the S.E.C. said,
“had they asked basic questions right from the start.”

Mr. Sell Bigpolicy is one of tens of thousands of financial advisers working hand-in-hand with
insurance companies to market themselves to older Americans using impressive sounding
credentials.

Many of these titles can be earned in just a few days from businesses concerned only with the
bottom line and sound similar to established credentials that require years of study, difficult tests
and extensive background checks.

Many graduates of these short programs say they only want to help older Americans. But they are
frequently dispensing financial counsel that they are not qualified to offer, advocates for the elderly
say. And thousands of them are paid by some of the country’s largest insurance companies to sell
elderly clients complicated investments that some economists say most retirees should never own.

More than two dozen such programs now exist, and have enrolled more than 39,000 people over
the last decade.

But some of the existing programs, which are often linked to insurance companies, have taught
agents to use abusive sales techniques, regulators say.

Some insurers have been listed as sponsors at seminars with names like the Million Dollar
Academy, where thousands of sales representatives were advised to scare retirees by saying, “I
am all that stands between you and potential catastrophic loss.” Other seminars instructed agents
to “drive a wedge” between retirees and their established advisors.

“The insurers are happy to turn a blind eye to what salesmen are doing, as long as they make a
sale,” said Minnesota’s attorney general, Lori Swanson, who is suing several companies,
contending that their products are at best inappropriate, and possibly worse.
Insurance companies say they investigate the backgrounds of all agents, screen all sales to
consumers to make sure they are appropriate, and have terminated representatives using
improper sales methods. Those companies said they were not aware of abusive methods taught
at any seminar they endorsed.

Some insurance companies say that they do not tolerate misrepresentation.

Another insurance company, in a statement, said “Any evidence of sales agent misconduct,
without exception, results in immediate termination.”

Nonetheless, complaints over sales of insurance products have soared.  In particular, grievances
have stemmed from annuity sales.  Obviously, occasionally a buyer of a product buys it without a
full understanding of the product.  If the product does not perform as expected, possibly because
the stock market went down, the buyer may have a selective memory failure.  The buyer can then
complain to the insurance company, among other places.  If the salesperson sold in good faith,
and the product was appropriate, sometimes the buyer may still have recourse.  Is this fair?

Over one third of all cases of financial exploitation of the elderly involve annuities, according to the
North American Securities Administrators Association, a regulatory group [EM1]. Hundreds of
lawsuits have been filed against insurers over annuity sales to the elderly. A judge in Minnesota
ruled in 2007 that just one class action suit against a large insurance company could encompass
as many as 400,000 plaintiffs.  Do all of the plaintiffs deserve to be compensated? Who ends up
with much of the money if the lawsuit is won?  If you do not know the answer to the last question,
ask yourself if it is a coincidence that huge class action litigation attracts prestigious large law
firms like a picnic does flies.

In interviews, sales agents who have been accused of wrongdoing invariably say that they followed
the guidance of insurance companies.

But consider, for example, that the vast majority of annuity sales do not offer immediate payouts.
Instead, they require buyers to wait as long as 10 years to begin receiving benefits. Such
contracts, known as deferred annuities, made up 97% of all annuity sales last year.

Deferred annuities, however, offer sales agents the richest commissions, which is one reason so
many of them are sold every year, regulators say. Selling a $100,000 deferred annuity, for
example, typically earns a sales representative $9,000, though buyers are sometimes prohibited
from touching much of their money for 10 years without incurring penalties.  No-load annuities, may
feature little or no commission, and may not have penalties.  Annuities with shorter tie ups carry
much smaller commissions.

In summation, if it is true that sales agents who push large deferred annuities with long tie up
periods are only following company guidance, that may be as negative a commentary on the
companies as on the agents.

“An annuity that pays a fixed immediate income offers seniors a lot of security,” said Jean
Setzfand, director of financial security with AARP. “But a deferred annuity is almost always a bad
idea for a retiree.”

Those concerns, however, have not stopped many insurance agents from aggressively selling
deferred annuities.

Some of those agents have been trained by organizations that require only a few days of
classroom instruction.

For instance, the 1,200 people who have enrolled in a different senior adviser program spent only
four days in a classroom, according to a spokesman.

The organization which gave Mr. Sell Bigpolicy his credentials is a for-profit company that has
trained 24,000 enrollees since it was started in 1997.

The company that gave Mr. Sell Bigpolicy his designation has a course that lasts three and a half
days, according to recent participants, and includes uplifting lectures, overviews on the sociology
of aging and exercises including peering through vision-blurring lenses to get a sense of how
some clients’ eyesight can falter.

Regulatory authorities tend to be ultra critical of these programs.

“There are limitless phrases being coined to convey an expertise in senior finances,” said
Massachusetts securities regulator William F. Galvin. “Most of them seem designed to trick
seniors into listening to swindlers.”

Most insurance salespeople are honorable and are not swindlers.  As in most lines of work,
however, not everyone is honorable and does the correct thing.

A representative for the organization said the program’s courses and questions were written and
evaluated by experts. In a statement, the company said its training was intended to supplement,
not substitute for, professional credentials and education. The organization began asking
titleholders in March to disclose to potential clients that designation alone does not imply expertise
in financial, health or social matters.

Despite that disclaimer, the company has trained thousands of insurance agents and other
financial advisors. And about 100 companies, many of them insurers, endorse the designation,
said a spokesman for the group.

Soon after Mr. Sell Bigpolicy received his designation, Mr. Sell Bigpolicy started displaying it in
ads and on letters inviting retirees to seminars over free chicken lunches, according to
Massachusetts regulators.

At those meetings, Mr. Sell Bigpolicy told retirees that they were perilously close to financial
calamity, according to Massachusetts regulators and attendees. He warned them that the stock
market’s ability to offset inflation was “a big lie,” according to documents collected by those
regulators. Banks contained “weapons of mass destruction,” read one handout.

But annuities, Mr. Sell Bigpolicy noted, offered guaranteed returns, attendees said. At the time, he
was authorized to sell annuities offered by more than two dozen insurance companies, state
records show.

Mr. Sell Bigpolicy’s script, Massachusetts regulators say, used materials from another training
company that had more than a dozen insurers as “partners” or “carriers” on the company’s Web
site.

There are a few dozen companies, like the training company in question, that teach sales agents
how to find retirees willing to buy annuities.

Some insurance companies say they endorse only training programs that are committed to ethical
sales tactics and that their support is often limited to providing speakers or marketing materials.
But they acknowledge that they cannot always police how agents present themselves.

Dozens of lawsuits against insurers contend that those companies failed to adequately supervise
sales agents who sold inappropriate annuities to aging clients and then did not act when buyers
complained.

Some insurers, in court filings and interviews, say they spend millions of dollars supervising sales
agents and investigating consumer complaints.

Some insurance companies, and some state regulators, have changed the rules governing how
annuity sales agents can behave.

This year, Massachusetts prohibited most financial advisers from using some titles unless they
were recognized by an accreditation organization or the state. In 2007, two of the largest insurers
told sales agents they could not use the designation of WE DO NOT WANT TO MENTION THE
NAME senior adviser.

But in most other states and at most insurance companies, sales representatives can use any title
they choose.

For his part, Mr. Sell Big Policy, while he awaits the outcome of his case, is still approved to sell
annuities by more than two dozen insurers, according to state records. This is not an isolated
example, which does not mean that an accountant should think that all insurance salespeople
behave like this sales person.  This example, in differing versions, does happen.  If the customer
consulted his or her accountant, which admittedly most do not, the above example, or something
like it, may not happen


Lance Wallach, National Society of Accountants Speaker of the Year and member of the
AICPA faculty of teaching professionals, is a frequent speaker on retirement plans, financial
and estate planning, and abusive tax shelters.  He writes about 412(i), 419, and captive
insurance plans. He speaks at more than ten conventions annually, writes for over fifty
publications, is quoted regularly in the press and has been featured on television and radio
financial talk shows including NBC, National Pubic Radio's All Things Considered, and others.
Lance has written numerous books including Protecting Clients from Fraud, Incompetence and
Scams published by John Wiley and Sons, Bisk Education's CPA's Guide to Life Insurance and
Federal Estate and Gift Taxation, as well as AICPA best-selling books, including Avoiding
Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does
expert witness testimony and has never lost a case. Contact him at 516.938.5007,
wallachinc@gmail.com or visit www.taxaudit419.com.

The information provided herein is not intended as legal, accounting, financial or any type of
advice for any specific individual or other entity. You should contact an appropriate professional
for any such advice.


"LANCE WALLACH" is the nation's leading expert in these matters and how it all relates to
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The IRS Dog's Pack Practices Nationwide

Don't waste any more time chasing your tail!
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