November 13, 2008
My name is Reid L. Allen. I am a member of the FPA of Northern California, a Certified Financial Planner and Investment Advisor Representative with Woodbury Financial Services.
I am in support of the proposed Equity-Indexed Annuity Rule.
As a financial planner for the last dozen years with clients, of which the majority are “seniors”, I find it very alarming to see the opportunistic agents representing this product without full disclosure.
A personal story to illustrate within the last month. An existing client referral made an appointment to “review some paperwork”. At this meeting the referral, a 76 year old widow, was driven to our office by her insurance agent. The paperwork she wanted reviewed was a handmade (MS Excel) spreadsheet with all her holdings. What she and her agent couldn’t figure out was how her investments had an “immediate liquidation value” of some almost $400,000 less than the current market value.
What they realized in my office is that she owned limited partnerships. Over 90% of her account value was in these LP’s. Upon informing her of what she owned and it’s very limited, if at all, liquidity she said she had already liquidated some investments. She showed me the confirmations. These were mutual funds with various companies and various registrations. Some were UTMA accounts. The insurance agent prior to our meeting had taken everything that was liquid and had her purchase an Equity-Indexed Annuity.
After a brief conversation about the liquidity need of someone at her age the agent mentioned for the second time the income guarantee received from the annuity. When asked about the surrender charge, of which the referral didn’t know what this referenced, the agent didn’t reveal but repeated the income guarantee.
After the meeting and a follow up phone call to repeat my concerns, the referral was too in shock to do anything.
My concerns for this woman were many. Unsophisticated single woman investor sold LP’s over many years, as recent as two years ago from another “advisor”, meets insurance agent that has her liquidate everything she could to “invest” her money in a financial product that receives stock market returns without the downside that too has no liquidity. No LTC insurance and no way of paying for immediate needs should they arise.
To end this sad story, the agent in question did not have a CA insurance license # on his business card. He is in fact licensed in CA (I checked) for the last two years. He is only licensed with companies representing EIA’s. He is a Nevada Corporation with an address on file that is not that represented on his business card.
Diminish these predatory sales by having this product under tightened regulation.
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Reid L. Allen, CFP®