Over the years we’ve seen several marketing trends and fads sweep through the securities business – some good, most bad. The worst ones typically are those that target the least informed investors at a time of their greatest vulnerability. That vulnerability is easily amplified by volatility in the stock market, and that is often aggravated among senior citizens especially. Unfortunately, this has put them in the middle of a new sales scheme that has to rank at the bottom for its cravenness and manipulative effectiveness. The sales scheme of selling annuities have put senior in the crosshairs.
A recent Wall Street Journal investigation of sales tactics among annuity sellers documented an almost unfathomable program of manipulation, lies, high-pressure tactics and fear mongering targeted at senior citizens. “Treat them like they’re blind 12-year olds” was representative of the approach taught at one of the industry’s major training institutes, Annuity University.
It’s not that annuities are always a bad investment. They can be very appropriate, but in many instances, they are the worst thing in the world for seniors. It takes a professional, objective perspective to determine whether they are good or bad in a given situation. Unfortunately, since annuities pay handsome front-end commissions and seniors tend to have a large amount of retirement assets, they are targeted. Seniors usually don’t get the objective advice they deserve. Annuity sales reps put seniors in their crosshairs for the same reason a famous bank robber gave for robbing banks, “because that’s where the money is.”
Annuities are structured in combinations of two basic sets of variables: fixed vs. variable and immediate vs. deferred. The differences are significant and complex. In every legitimate application, a detailed analysis should be undertaken to determine which, if either, form would be best for a senior citizen. But that’s not what annuity sales reps are told to do.
They’re told that they will waste time trying to explain these intricacies. “[Seniors] buy based upon emotions! Emotions of fear, anger, and greed.” In the words of one trainer, “there’s the technical answer, and there’s the senior answer. Tell them it’s like a CD – it’s safe, it’s guaranteed.”
That, of course, sounds pretty appealing. The truth of the matter is quite a different story. The disadvantages of annuities can be substantial. They typically have higher annual costs associated with them. They often times don’t provide the tax advantage they promise. And most of them reduce a senior’s financial flexibility. Annuities can also generate higher – not lower – taxes. Accordingly, a thorough and objective analysis often indicates that annuities are unsuitable for senior citizens. The only benefit really guaranteed is the sales rep’s commission. On a $50,000 annuity sale, that commission can be $4,000 (that’s 8% out of the senior’s pocket).
Preying on the Concerns of Seniors
Continuing the theme of fear, anger, and greed, salespeople are told to “toss hand grenades into the [pitch] to disturb seniors.” “You have to create problems first. No problem – no sale. Tease them with solutions.” No matter what, the senior must walk away with the feeling that they’ve screwed up their finances.
If a senior’s concern is about taxes, then the sales rep is coached to tell them that tax law changes – either passed or pending – will impoverish them.
If the senior is concerned about lawsuits, they should be told that their savings are not insured against someone suing them for something as trivial as running over a neighbor’s cat.
When the senior is concerned about nursing home costs, they should be told that annuities are the only way to protect their assets from Medicaid seizures.
In short, no matter what the senior’s focus or concern, the sales reps are taught that making the sale is all “about putting a pitchfork in [the senior’s] chest.”
As if the lies, manipulation and fear mongering were not enough, Annuity U. trains sales reps in the craven subterfuge of convincing seniors that the sales rep – who may at that moment be their worst adversary – is, in fact, their best friend. Reps are told to convince seniors that they “love them and care about them… that they are the most important person in [the sales rep’s] life.”
Nothing is left to chance, starting with how salespeople are taught to approach seniors. Seminars are a very popular way to start this process. Sales reps are told how to advertise and structure a seminar. They are told to offer a free meal because “[seniors] like freebies” and “like to eat one major meal a day.” Seminars are supposed to generate fear among the attendees and allow the sales rep to identify the best prospects. Reps are advised to place an assistant in the parking lot to note what type of car each attendee drives to determine who has money and who doesn’t.
Sales reps are also very purposeful about targeting seniors in their homes. Behaviors such as “don’t walk on their grass”, “after you knock have one leg up on their step prepared to walk in” and “wipe your feet to show respect for their cleanliness” are emphasized to create an artificial bond which is necessary to make the emotional sales pitch. Compliments are coin-of-the-realm in these meetings. Sales reps are taught to comment favorably on the pictures of the “little brats that pass for grandchildren” and share their pastimes and hobbies. It doesn’t matter whether the sales rep enjoys these activities. The important thing is the image.
Once trust is established, sales reps really go to work. Every fear and concern that senior citizens have ever expressed in phone surveys or in seminar questionnaires is trotted out for further discussion. These sales meetings progress from light and airy, to dark and ominous, and finally to serious and pressing. After a senior’s fears have been reinforced, sales reps are taught to get the senior to actually move about the house to gather various financial documents. The immediacy of this activity lends weight to the seriousness of their fears and the timeliness of solving the problem immediately.
This exercise also gives the sales rep valuable information about when certificates of deposit are maturing and the location of various bank accounts and financial assets. This, in turn, allows the sales rep to follow up with a senior citizen just before CDs mature to re-emphasize the need to transfer these assets into an annuity.
Determine What Is In Your Best Interests
In the sale of annuities and the gathering of assets, nothing has been left unaddressed, with the sole exception of honestly and objectively determining what is in the senior citizen’s best interest. Every aspect of the process has been analyzed, and specific approaches developed. Annuity pitches become more like stage presentations with each repetition of the process.
Needless to say, anybody contemplating an annuity purchase, or anyone who owns an annuity, should get a second opinion from an objective advisor. Seniors should remember that they not only have to be the guardian of their financial security but more and more they are being called on to play the part of theater critic as well. At First Financial, we are committed to honest, 100% objective advice. We do not sell, and our only interest is your best interest.
If you want to learn more about how Annuities are structured, read our article “Annuities Here, Annuities There… Buyer Beware!”