90-Year-Old’s Investment Raises Questions

The subject of this week’s column is 90 years old and lives alone in Santa Monica. She fears loss of security if she is identified.

I always prefer naming names. But the documents provided and the financial companies’ responses to them make this a story worth telling.

On Jan. 20, 1998, this woman went to her bank of 25 years, First Federal Bank of California, with plans, she says, to buy a CD.

However, a teller referred her to a desk where a man representing Independent Financial of Purchase, N.Y., sold her an annuity issued by American Enterprise Life for $25,000.

Under terms of the sale, the interest accruing to this uninsured investment is folded back into the annuity, and it will not start paying off until the woman is 96, seven years from the date of purchase.

Life expectancy figures from the federal government show that a woman of her age at the time of purchase could expect to live, on the average, less than 5.4 years. So the odds are she will not live to get a dollar out of this, although, if she dies first, the money would go to her heirs.

Several documents show that the woman signed or initialed clearly worded descriptions of the annuity, including a warning that it is “subject to investment risks, including possible loss of the principal invested.”

But she insisted in several interviews that she didn’t understand what she was buying and thought she was getting her bank’s CD, an insured certificate of deposit with a much quicker payment.

“I was sitting there with my cane,” she told me, “and this man walks over to my chair, his hands filled with papers.

“Maybe five to seven minutes, that’s all it took to sign everything. All I can remember him saying was, ‘Here are the papers, sign these,’ and, stupid me, I signed. . . . Weeks and weeks later, I picked them up and read them.”

She adds that although she has two CDs at First Federal Bank, worth about $50,000, and enough other income to live on, she could use the $25,000 from the annuity to pay for medical care for her son, who is ill.

But it took nearly nine months, until Oct. 13, for her to write and ask for cancellation, without the prescribed 7% penalty.

Independent Financial refused. Susan Green, a manager, wrote back that the seller of the annuity, Christopher Licata, “properly disclosed all material aspects of your investment . . . and American Enterprise Life has also communicated to you the pertinent facts.”

Licata no longer works for Independent Financial and could not be reached for comment.

Green referred me to Hal Thayer, a spokesman for Liberty Financial Corp. of Boston, which owns Independent Financial, to explain further.

“As a matter of corporate policy and just simple fairness, we don’t discriminate against the elderly,” Thayer said. “It’s arguable that we would have been at risk of discriminating had we done more than present her with the investment that she was considering or said anything about her age.”

But is it fair to speed a sale with a woman, then 89, all on her own in the bank without independent financial advice?

Thayer said he thought it was, because the documents were clear.

“We don’t know what precisely was said by the agent,” he conceded, however.

A Thayer associate, Porter Morgan, described the possible advantages of buying an annuity, even if you probably won’t live to collect.

Morgan noted: “We’ve sold to even older persons. If this is money an individual is likely to need soon, then an annuity would not be a good investment. But many have assets sufficient to support daily living. They are looking for a higher interest return, and that, with tax and estate planning advantages, argues for purchase.”

Besides, he said, the woman could take out 10% a year without penalty, and if she waits five years, the penalty would be only 2%.

Liberty Financial has $14 billion in annuities out there, he said, and “the average buyer is in the 60s.”

But the 60s are not the upper 80s or 90s, I observed.

“Should a business look at someone and say we won’t sell to you?” Thayer asked.

I went to the bank and discussed the sale with First Federal’s general counsel, Ann E. Lederer.

She said the sales agent had done a suitability profile of the woman under rules of the National Assn. of Security Dealers.

“With regard to age, if someone were obviously incompetent, then they wouldn’t be accepted,” Lederer said. “. . . Under the suitability analysis, she seemed to qualify.”

The woman told me, however, that she can’t remember being asked any questions for a profile.

Lederer introduced me to Steven Negri, now staffing the Independent Financial desk at the bank, which pays First Federal a commission on its sales.

The desk had notices that annuities are not insured and that they might lose their value. But, of course, the woman maintains that she never actually went to the desk.

Negri said the sales are made under guidelines of the U.S. Office of Thrift Supervision that say annuities can be sold until someone is 95 years old.

But in Washington, Bill Fulwider of that agency said there is no age limit in the guidelines.

So what happened here? I am very uneasy about this transaction, although two consumer experts caution that there isn’t enough information to solidly condemn it.

Herschel Elkins, a senior assistant to the state attorney general for consumer affairs, said: “In this case, it is difficult to say there has been a specific violation. But there are certainly questions.”

Timothy Bissell, assistant director of the Los Angeles County Consumer Affairs Department, said: “This is akin to a lot of cases we handle. The question is: Did the person making the purchase really understand what she was buying? . . . With a younger person, there’s more chance they did.”

Ken Reich can be contacted with your accounts of true consumer adventure at (213) 237-7060, or by e-mail at ken.reich@latimes.com.