Tharp, a widowed homemaker, had invited an insurance man to her home in Upland to get her estate in order. The salesman shifted the conversation to a different subject: annuities. Then he asked whether they could move outside to the back patio, so her cats wouldn't trigger his allergies.
The salesman talked for hours. The November afternoon grew cold and dark.
Finally, Tharp gave in. She agreed to move the bulk of her retirement savings into an annuity.
"He was so talkative he could sell you anything," recalled Tharp, 69. "After five hours, I was so tired and cold, I just wanted to make him go away."
Tharp had second thoughts the next day and was able to get her money back with help from her financial advisor. Thousands of other elderly Americans have not been so fortunate.
Investment brokers and insurance agents are selling annuities to the nation's 36 million senior citizens at a furious clip, often through deceptive or high-pressure tactics. Annuity sales reached $217 billion last year — nearly triple the level of the early 1990s.
Using come-ons honed by marketing experts, unscrupulous agents play on seniors' fears by suggesting that stock mutual funds, even federally insured bank accounts, are too shaky to depend on. They depict annuities as a secure alternative without explaining the accompanying fees and restrictions.
Some sales agents offer estate-planning services or free financial workshops for seniors to gain access to their financial information. Then they zero in on those with sizable assets, delivering a hard sell for annuities regardless of whether they meet the clients' needs.
Annuities are contracts that promise fixed or variable payments in the future. Salespeople sometimes omit mention of the "surrender" charges that apply if buyers withdraw more than modest sums in the early years of an annuity.
Murray H. Cheves, a 90-year-old retiree from San Luis Obispo, bought a $100,000 annuity in 2001 with exit penalties that lasted 10 years. Cheves would have had to live to 100 to have unfettered access to his money.
Instead, he died at 91, and his heirs were slapped with an $11,000 surrender charge.
"Our older citizens, understandably concerned with rising living and medical costs and even pension uncertainties, are being targeted by unscrupulous financial predators," said William F. Galvin, Massachusetts' top securities regulator, who has brought a string of complaints against annuity providers.
The NASD, the brokerage industry's regulatory arm, has filed 286 enforcement actions over annuity sales in the last six years — including 88 in the 12 months that ended in November, the most ever for a single year.
In a case settled last year, the NASD accused Waddell & Reed, a Kansas-based brokerage with offices across the country, of prodding thousands of clients to transfer their annuities from one insurance company to another. The reason: The new insurer had agreed to give the brokerage a bigger cut of revenue, according to the complaint.
Waddell & Reed urged sales agents to disparage the original insurer, questioning its financial strength and its commitment to customer service, said the NASD, formerly the National Assn. of Securities Dealers.
Customers switched 6,700 annuities to the new provider, generating $37 million in commissions for Waddell & Reed and its brokers. Investors, meanwhile, paid $10 million in early-withdrawal penalties.
Waddell & Reed paid $16 million to settle the case, along with $3 million to resolve similar suits brought by authorities in seven states. Two of the firm's executives were fined and suspended as part of the settlement. The brokerage, which neither admitted nor denied wrongdoing, declined to comment.
In California, state authorities and irate investors have accused subsidiaries of AmerUs Group Co., an insurer based in Des Moines, of using scripted pitches to frighten seniors into moving their savings into annuities.