Annuities – which are basically investment packages with a life insurance policy included - are an investment option that in recent times has been witness to a lot of fraudulent activity. This activity is often targeted at senior citizens who are talked by sales agents or brokers into buying the annuities against better judgment. Or these scams may simply be targeted toward the gullible and unschooled. It’s important to avoid these rip offs before they even get under way. There are a number of warning signs that should raise a red flag when you’re considering buying annuities. If an agent engages in any of these 5 behaviors, at the very least get a lot more information about the agent’s background. Most probably it will be advisable to cease negotiations with such an agent completely.
1. The broker fails to ask about your age, marital status, occupation, financial and tax status, investment objectives, and risk tolerance.
The broker is required to ask you questions of this nature. If he fails to do so it is more than likely because he doesn’t want the answers because they would make the annuity inadvisable for you. This shows that his only real motivation is to sell you the annuity and not to advise you on choosing the right investment. There really is no excuse for this sort of behavior, and no reason why any broker or agent wouldn’t ask you these basic questions. Often this will go along with the other items on this list.
2. The broker has sold you the annuity when the factors indicate that the annuity is not for you.
If you are over 70 and in need of immediate income, an annuity is probably not a good investment. Annuities are best suited to people looking for a long term investment – i.e. younger people - that pays out at guaranteed intervals and which also functions as a life insurance policy. So if you are a senior in need of day to day living income, and a broker did convince you to buy an annuity, you may be the victim of fraud. These cases sometimes even go to court and end in large settlements, so just because you’ve already bought the annuity, don’t get the impression that there is no recourse. Check the other items on this list and if you think you’re the victim of fraud, talk to an attorney.
3. The broker tells you there is no risk and the annuity is a 100% guaranteed investment.
The only actual guarantee that comes with an annuity is the life insurance policy payout. That is – whatever the annuity is worth is guaranteed to be paid when the policyholder dies. The rest is subject to market fluctuation just like any other investment. So if a broker tells you that an annuity is a “guaranteed investment” he’s just combining some words and trying to make the annuity sound like something more certain than it is so he can sell it to you and collect his commission. That’s not a good sign. Right there you should probably walk away
4. The agent or broker asks for access to financial information – living trusts and other investments, or is especially critical of existing investments.
A broker who is trying any way he can to sell you an annuity will try to make your existing investments look bad so that you decide to opt for his product. It is easier for him to do this if he has access to your investment information and documents. He will familiarize himself with your investments and then tell you how risky or poorly chosen they are and tell you how his “guaranteed” annuity is much safer. Don’t fall for this and don’t show him the investment information unless he has a really good reason. He should only be asking about your situation and investment goals, not going in depth into investments you already have, unless he is actually advising you on steps to take with them. Again, this sort of behavior is all about a hard sell that has little relevance to whether an annuity would actually be right for you.
5. The agent or broker tells you not to listen to naysayers.
If a broker is telling you that everyone else wrong, that they are just trying to bring you down and that you should stay positive then...run!
These are some warning signs, and you can see that general pattern. Brokers looking to scam don’t want to discuss anything but how great a financial product is, and they have the best annuity available, and finally why you should buy it. They may refuse to talk about any drawbacks and even get angry if you try to question them too much. The overall tone itself is a good “scam barometer.” Don’t get taken by these sharks. Check out the background and references of any broker or financial company you deal with and consider annuities only if you have been fully briefed on both the advantages and potential drawbacks. Annuities can be a good investment in certain situations, not in others. Whether you choose to invest in one is in the final sense up to you, not your broker.
Lisa Cintron is Executive Vice President at OnlineAnnuityRates.com, an annuity guide to help you through the process of due diligence when researching retirement annuity rates.
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