Bill Targets Scams Against Seniors
The pitches seem benevolent. An annuity will reduce taxes, goes the well-oiled spiel. Deferred savings will shield your home for heirs. High-interest certificates of deposit are a fast and safe way to make a buck.
Coming from bankers, retirement planners or a salesman at the door, this investment advice to elderly clients can be sound in certain cases, financial experts say.
But too often, unsuspecting investors are tricked into scams that leave them destitute in their final years, state regulators say.
Insurance fraud targeting seniors is rampant in California, making up 25% of the 2,500 annual complaints to the Department of Insurance, officials say.
One of the most flagrant practices is selling annuities -- which are investment contracts that guarantee a stream of income -- to seniors who won’t live long enough to benefit from them.
Legislation introduced in Sacramento this year aims to curtail the practice. The bill, SB 192 by state Sen. Jack Scott (D-Altadena), would require insurers to set standards for when it is appropriate to sell annuities to buyers age 65 and older and to reject contracts that would hurt seniors.
Backed by Insurance Commissioner John Garamendi and senior advocacy groups, the bill seeks to stem the worst abuses while preserving the right to sell the financial products to elderly clients, supporters say.
“It’s protecting people who are absolutely defenseless,” said Prescott Cole, staff attorney at California Advocates for Nursing Home Reform. “Seniors are terrified about running out of money. So they fall prey to a variety of scams.”
Opponents in the insurance industry have portrayed the bill as anti-business, however, and Scott is in a tough fight to get it passed.
They say previous reforms have given regulators greater oversight and funding to go after shady operators. Reputable insurance companies already police themselves, said Mike McCaffery, a California spokesman for the National Assn. of Insurance and Financial Advisors.
Issues raised by the insurance industry prompted Scott last week to hold the bill in the Assembly Insurance Committee until the next legislative session in January. Meanwhile, Scott said he would attempt to address those concerns while keeping the core issues of protections for seniors in place. “I’ve got to walk a fine line between what I think is pro-consumer and yet get a bill that I think will get signed into law,” he said. “To do that, I need more time. But I’m not giving up on the fight at all.”
Scott’s first draft of the bill required sellers to take into account a senior’s age, insurance goals and financial sophistication, and sign a document saying they had done so, conditions that McCaffrey said were too onerous.
Clients are already frustrated by the number of disclosures and forms they must wade through, McCaffrey said. Sellers might have to ask buyers for additional information to meet the standards.
Clients “might say, ‘I don’t want to do this anymore, it’s too complicated,’ ” McCaffrey said. “The Big Brother frustration grows and grows.”
Seniors are targeted because they are often flush with savings, advocates say. About 70% of the nation’s wealth is held by people age 50 and above, experts estimate. Supporters of the bill say the elderly often are too courteous and too trusting of salespeople. A common scenario involves the sale of a living trust -- a legitimate tool to avoid unnecessary litigation after death, regulators say.
Once the disreputable sales people have gotten detailed information about a person’s finances, they then employ pressure tactics to talk seniors into buying annuities. Depending on the type of contract signed, buyers can be shocked to learn that they cannot access their money for a period of time without incurring hefty charges that were not adequately explained.
The salesperson, meanwhile, reaps a commission of about 6% to 8%.
Scott said he became aware of abuses when his wife’s uncle was talked into buying an annuity well into his 90s in Texas. In 2003, the California Legislature passed his first bill aimed at tightening annuity sales, SB 620.
Suitability standards were stripped from that bill when they became too controversial, Scott said. Getting them passed now, with a pro-business Republican governor, might be even harder, he said.
“By continued pressure I’ll get a strong bill out,” he said. “But I want to make sure it’s a bill that is also signed by the governor.”
In a Senate hearing earlier this year, proponents of the bill recounted abuses.
Sacramento attorney Ed Corey told the committee that he represented an elderly couple who were left with little income after buying an annuity. The husband, 94, suffered from dementia, and his wife, 62, didn’t speak English, Corey said.
An agent sold them a living trust and then persuaded them to buy a $180,000 annuity on the same day, he said. The contract matured in 2053, when the man would have been 142 and the wife 110, Corey said.
The insurance company, Midland Life, “stepped up to the plate,” rescinded the contract and returned all of the money to the couple, he said. If Scott’s bill had been in place, Corey said, the company would have caught the questionable deal earlier, he said.
“It will help them screen in advance these agents who may be inclined to defraud seniors,” Corey said.
Some advocates for seniors say the best way to stop the abuses would be to ban sales of annuities to people older than 85. But the insurance industry is opposed to what it calls discrimination against the elderly, McCaffrey said.
“We see some seniors well into their 80s who have a level of financial sophistication,” he said. “They say, ‘I’m in charge of my money, and this is what I want to do with it.’ ”
Supporters said they would be watching the bill’s progress.
“There is no greater indignity than working all your life for your golden years and then to find out when you get there that the gold has all disappeared,” said Joan Allen, an expert in senior financial abuse. “More protections are needed.”