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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,
Excerpts have been taken from this book about:
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
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
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
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
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 is a frequent speaker at national conventions and writes for more
than 50 national publications. Visit www.vebaplan.com or call 516-938-5007.
The information provided herein is not intended as legal, accounting, financial or
any other type of advice for any specific individual or other entity. You should
contact an appropriate professional for any such advice.
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Lance Wallach, CLU, ChFC, CIMC, speaks and writes about benefit plans, tax
reductions strategies, and financial plans. He has authored numerous books for the
AICPA, Bisk Total tape, and others. He can be reached at (516) 938-5007 or
firstname.lastname@example.org. For more articles on this or other subjects, feel free to visit
his website at www.taxlibrary.us or www.vebaplan.org.
Lance Wallach, National Society of Accountants Speaker of the Year, speaks and
writes extensively about retirement plans, Circular 230 problems and tax reduction
strategies. He speaks at more than 40 conventions annually, writes for over 50
publications, is quoted regularly in the press, and has written numerous best-
selling AICPA books, including Avoiding Circular 230 Malpractice Traps and Common
Abusive Business Hot Spots. He does extensive expert witness work and has never
lost a case. Contact him at 516.938.5007
. The information provided herein is not intended as legal, accounting, financial or
any other type of advice for any specific individual or other entity. You should
contact an appropriate professional for any such advice.