I find these stories very sad. First of all, it’s always the customer’s job to be educated about any options they might be considering — particularly when they’re shopping around for financial products. When a customer isn’t educated for whatever reason, it doesn’t provide justification for salespeople to suggest products not in their best interest. Every once in a while I come across stories about completely inappropriate financial products — such as annuities — being sold to elderly individuals. I’m not saying that all elderly people don’t understand complex financial products, but anyone who may not want to admit that all their mental capacity is no longer still with them may also be willing to go along with any advice that comes from a seemingly trustworthy individual.
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Maryanne emailed with this story about her 86-year-old father, who may have been scammed by Bank of America and the bank’s investment arm, Banc of America Investment Services, into buying a variable annuity, an investment he does not understand.
Bascially, he walked into BofA to do some banking when the teller told him he had so much money he really needed to talk to their “financial consultant.” Found out later on these tellers get a bonus for sending over customers. Dad felt comfortable because this was his bank where he had done business for years and listened to their recommendations.
But this financial consultant is actually with the Banc of America Investment Services. What average person would notice that here bank is spelled with a “c?” So it’s not the SAME as Bank of America.
Long story short, if I try to get my father out of this annuity, BofA wants $25K. If we leave it there, they take out 2.35% annually for their “management fees.”
I’ve written to the Pres and CEO as well as their Compliance manager but have heard nothing except for a short note asking for a copy of my Power of Attorney. I said I want the money TODAY without the surrender penalty but nothing so far and that was weeks ago.
Overall, I need to convince my father to stay alive until April 2010 so we can close the account without penalty.
Maryanne goes on to say that seniors view banks, brokerages, and their employees as trustworthy and don’t understand that they are not always operating with the best interests of their customers, and the products offered often have more to do with the commissions the salesperson might receive. Variable annuities may have their place, but not in this particular case. Liz Pulliam Weston has warned about annuity salesman and even mentions a specific case with Banc of America:
A Banc of America Investment Services employee was charged [by the NASD] with selling an unsuitable annuity to an 18-year-old. The teenager had received a small inheritance and planned to use the money after college as a home down payment. She was in too low a tax bracket to benefit from any tax deferral and had no need for the death benefit, since she was single and had no dependents. To make matters worse, the NASD says, the broker put all the client’s money in a single equity investment sub-account, exposing her to much higher risk than was suitable.
Education is such an important piece, and will help a customer understand what the salesperson isn’t telling you about a product. High-pressure sales tactics can fluster even someone who knows more than the salesman. While there’s no good answer that will work for every relationship, if you have an elderly relative, it might not hurt to be more involved with their financial decisions. Maryanne thought it would help for people to protect their parents from banks. Again, this might work in some families, but it is not a one-size-fits-all solution.
Is it ethical to sell a product that may not be in the best interest of the customer when that customer may not fully understand the consequences?
Updated October 21, 2015 and originally published May 14, 2007.