Although a bit behind on getting it up, I wanted to flag this article from Ron Lieber about his experience showing up for a “complimentary gourmet meal” with an annuity salesman.  By doing a few record checks, he soon discovered some interesting facts about the annuity salesman:

And the host? An insurance salesman, Arif M. Halaby, who I quickly discovered had been the subject of a state cease-and-refrain order earlier in the decade because of certain financial products that an administrative law judge determined that he had sold. The state found that Mr. Halaby was offering “unqualified” securities after an ailing older client pulled equity from his home to invest in a real estate development in Costa Rica.

At this point, alarm bells should be going off.  This is the sort of high-risk move that could easily prove disastrous.  

The SEC has long warned about these seminars.  When it held its “senior summit” about a decade ago, it issued warnings that the seminars may involve misleading presentations that are just designed to sell products.

When Lieber attended this one, he discovered the presenter using a graphic depicting the annuity product significantly outperforming the S&P 500.  The fine print disclosed that the graphic omitted all of the gains from dividends paid by the companies in the S&P 500 index.  If dividends had been included, the S&P would have outperformed the annuity by over 30%.  Hopefully state regulators in California devote more resources to making sure that these sales seminars are not defrauding customers.

There have been problems with annuity sales practices for a long time.  Dateline even sent Chris Hanson, of To Catch a Predator fame, to investigate how these products were sold in Florida.  He found misrepresentations and a cottage industry built around helping these sales folk amass credentials that could dupe people into viewing them as financial experts.  For example, one outfit offered the opportunity to be “the author of a book called ‘Alligator Proofing Your Estate’.”

The financial advice problem is particularly thorny because our regulatory structure treats financial advice differently depending on who it comes from and what product, if any, they are selling.  Insurance falls mostly within state regulation while federal law and regulation covers stockbrokers and registered investment advisers.  The public doesn’t really appreciate the differences between these regimes and often walks into a sales environment under the mistaken expectation that the adviser would be giving them advice based on their best interest.  The confusion is understandable–at base savers are all seeking financial advice.  It’s unfortunate that our system requires them to be experts just to figure out who to trust.