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Ethical? Bank of America Sells Variable Annuity to Elderly Person

This article was written by in Investing. 20 comments.

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.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 20 comments… read them below or add one }

avatar 1 Anonymous

I was a licensed insurance agent at one time and my brother has both his insurance license and series 6,7,etc. Unfortunately the email doesn’t give any reason to suspect impropriety on the part of the broker. There are many different types of variable annuities and some I would argue are very appropriate for an elderly person. The second example given is clearly a case where the broker screwed the 18 year old out of being able to use the money when she was planning. The key factor here is ‘best interests’ and what the plan for the money was/could be. Another point, usually around 10-15% can be withdrawn from the contract every year free of surrender charges.

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avatar 2 Anonymous

If the daughter of the elderly man wants to file a complaint, the NASD is probably the best place to start.

Even so, the responsibility of proving the brokerage acted in their best interest and not the customer’s will lie on the father and daughter.

I would recommend to Maryanne that she consult with her father before he makes any more investments.

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avatar 3 Anonymous

Most larger banks require tellers, personal bankers to make referrals. In some cases if you don’t meet the minimum in referrals and sales you either don’t get a raise or you are terminated. Also personal bankers usually get points for different account they sell and are expected to meet the minimum and get $$$ for what points they go over. A lot of personal bankers are also licensed to sell fix annuities and even variable. I’m very suspicious, when I’m at a personal banker’s desk. Since I know they are under sales pressure, I’m very cautious in taking their advice.

As to where the father/daughter can complain too, besides NASD, complain to your States Insurance Department.

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avatar 4 Anonymous

Maryanne might also bring this to the attention of her state’s Attorney General. If she is lucky enough to live in New York, Governor Elliot Spitzer or Attorney General Andrew Cuomo surely would be interested in this matter. They are both very pro-active about consumer and financial fraud.

Good luck and my heart goes out to both her and her father in this troubling matter.

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avatar 5 Anonymous

i have to agree with the first post on this. i am also a licensed insurance agent and there are many very appropriate variable annuties out there, for elderly as well. obviously you have to be careful about what you purchase but i think this post is extremely misleading and biased. how do we know that maryanne’s father wasn’t sold something appropriate and she is uneducated? i also don’t like it when brokers and insurance agents are made out to be money hungry thieves who would screw over their own mother to make a buck. ive never sold a product to a customer that wasn’t in their best interst and never would. you just have to be careful in who you do business with.

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avatar 6 Anonymous

YOU may have never sold a product to an investor/ customer that wasn’t appropriate but MANY have. There are several elderly in my family and they have difficulty figuring out their Medicare statements w/o assistance. An annuity would be far beyond their ken..

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avatar 7 Luke Landes

With all due respect to insurance agents, what are the terms of a variable annuity that could be considered “good” for most elderly? They’ll put money in with an ever-decreasing chance of seeing profit. The money is then tied up with penalties for withdrawals at a time when they should be living off distributions from their retirement funds.

From MsFinancialSavvy:

“Because calculating the cost can be complex and much of the cost is hidden, most elderly investors have no idea of the charges they are actually facing when they purchase an annuity. In order to understand all of the rules and charges they or someone they know, would have to read the annuity contract for, at least a few hours. Much of the heavy costs are charged if the annuity is cancelled and the money taken, before the surrender period, which typically is seven years.”

There’s a *possibility* that a variable annuity can be structured in a way that makes sense for an elderly individual, but it just isn’t likely.

But I would invite any insurance agents stopping by to share the details of what *they* would have offered Maryanne’s 86 year old father, and why that would be better than other investment options. And let’s be honest — be sure to include all “hidden fees.” I’m willing to be convinced.

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avatar 8 Anonymous

2.35% is high even for the typical VA. Sounds like her father was upsold on a bunch of extra options. Start with 1.5% as the base policy expense — add in .6% for the no-loss guarantee, add in .25% for the inflation-bump rider.

Basically, insurance salespeople prey on people’s fears. The thought of losing money in the market is 1000 times more powerful than thoughts of gaining money.

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avatar 9 Anonymous

My elderly friend (84 years of age, with terminal illness) walks into BOA to do banking. Was approached by employee, who also was his friend of 13 years, was talked into buying a $75,000.00 annunity, paying him $900.00 return for life. His life expect was 2 years at most. He purchased it, believing BOA was looking out for his interest. He passed with only receiving 13 payments of $900.00. By the way, he was 80% blind and could not read documents. No witnessess present. BOA is trying to keep remaining funds. Looking for assistance to fight for him. I am POA and PR of the estate.

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avatar 10 Anonymous

This is really sad, but I don’t understand how BOA can keep his funds.

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avatar 11 Anonymous

I worked for a major U.S. bank with a major financial services arm and was saddened by what I saw regarding annuity sales and the elderly. The commission earned on these products is near obscene, making them a product that is often pushed and as a result often pushed on people that shouldn’t purchase the product in the first place. Annuities are an extremely confusing product to the general public.

I don’t know how people who cheat the elderly sleep at night. Let this be a lesson for the children of aging parents, have the hard conversations with your parents. Explain to them that there are many high pressure sales people (and that’s what they are folks- sales people,most are not CFAs or CFPs) who work at the bank and are interested in profiting off of an older individual who is potentially less savvy than a younger consumer who has access to the internet. Tell your parents you would be glad to go down to the bank and have a meeting between your parents and the sales person.

Shame on those who try to make a quick commission off of the elderly.

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avatar 12 Anonymous

First of all the withdrawal charges are a non-issue for his distributions. Most annuities allow a person to take 10-15% out per year and he shouldn’t be taking more out anyway. Also there is a “free look” period where he could have surrendered the annuity. Additional “bells and whistles” almost certainly did not increase the broker’s commission. Finally RMD’s can deplete an account prematurely if a retiree lives longer than expected, and an annuity may protect against that.

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avatar 13 Anonymous

I will use everything I have, with the help of God above, to put a end to this.

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avatar 14 Anonymous

My mom is considering a 400,000 10 year anuity with Met. Life at 6.75 % in which each month she will receive principal and interest payment (roughly $4,000 a each month) during the course of 10 years. Is this a good idea?

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avatar 15 Anonymous

The point where annuities get scary is that they are only as good as the company that issues them. Boomers are likely to overwhelm those companies, making a few go bankrupt and then those annuities will be worthless.

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avatar 16 Anonymous

My 84 year old mother with alzheimer’s was sold a 15 year 75,000 annuity. She didn’t know what she was signing. I only found out after my father’s death when going through all their files. I think this is not only unethical, it’s elder abuse. Help.

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avatar 17 Anonymous

How can this be such an ongoing issue with no recourse for the elderly? My Grama is stuck in a 25k annuity until 85 (which was all of her money). The $1,000 PER YEAR payout does not help her live on what is coming it. We are fretting over whether to break the annuity and get the penalty as she cannot wait the additional 4 years for the money. Not to insult the elderly, but where is the legistature to provide clear guidelines of “benefit” and reality. Laws should be in place to not lock funds away when age is a factor and foreseeable income is not even over poverty level. Any advise on how to break the annuity?

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avatar 18 Anonymous

In CT it IS senior abuse.

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avatar 19 Anonymous

when is this outfit going to be clodes down?????

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avatar 20 Anonymous

My 82 year old father recently passed and while digging through everything, I found he had purchased an annuity through his local bank. The beneficiaries named are myself and my minor child. He died without a will and the problem is now I have to spend hundred of dollars wasted on court to open a guardianship and maintain it for the next 5 years. All because Personal bankers believe that they themselves understand estate planning. My father opened it when he was 81 and he did not have his wits on him since he could not even get my name right. When I called the banker to explain to her the issues with a minor beneficiary and to ask if she went through all the info with him she said it was not her responsibility and hung up on me. Honestly getting 1.70% and 1% afterwards he might as well stayed in a CD.

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