As reported in the Detroit Free Press, John Hermann is a down state attorney who has filed a lawsuit in Federal Court on behalf of a 90 year old couple who were sold $1.8 million worth of 10- to 12- year annuities by a firm out of Warren Michigan. This couple would have to live until 110 years of age before they could utilize the proceeds of these annuities. If the allegations against the company that sold the annuities are true I hope they receive the punishment they deserve. It’s not that I am against annuities. I am a firm believer in the “magic” of deferred annuities and compound interest for those looking for a low risk investment with built in guarantees. I also utilize immediate annuities to guarantee a lifetime income, something that is recommended by AARP and the Wall Street Journal as a way to supplement retirement income with a check that never stops coming.

Annuities make sense if used properly and if the product sold is suitable for the person buying it. I use annuities all the time for my clients, but I use the right ones for the situation that is presented to me. So why am I so incensed by this unscrupulous sales organization selling these annuities? Because when they sold them the annuities they took a trusted advisors role and used it for their monetary gain without any regard for their client’s welfare.

To me there is nothing worse then an individual who charges a fee for their services and also receives a commission for a product they sell you. Commissions = “Conflict-of-Interest” and sometimes just “Con”. Even worse is when they don’t even tell you they are receiving the commission.

A case in point is a client of mine who came to me because she was in need of advice on estate planning and conservation. She was turning 84, lives on one of our beautiful lakes, her house is paid for and yet she had very little income. Why? Because an attorney down State, who had drawn up her wills and powers of attorney, was also a “financial advisor”. Although he charged her a hefty sum for the estate work, he also took her money and invested it into programs where she was unable to get to the principle, withdraw the interest or have a regular income stream. She had a portfolio that was suited for a person looking towards the future with lots of years to accumulate assets. Not someone who is in her early eighties and ready to live the rest of her life enjoying what she gathered in years past. Not only was she in very risky investments, but he had taken an annuity policy she had and “churned” it three times by rolling it into a new company every few years. Each time she lost money due to surrender charges and he made a new commission. The last policy he rolled her into was when she was 81 and it had a 25% surrender charge for the first 7 years and then dropped slightly for the next 8 years. By the time she was able to take the money without a charge she would be in her late nineties while he had his commission paid right away. Plus she was unaware that he was making this additional income on her program.

Regretfully it cost her some money to get what she needed but we were able to accomplish the real goal she desired – income without worrying that it might run out and in case of her death her heirs would receive a substantial inheritance from her estate. She is very happy with what we have provided her, but she is very dismayed that someone she trusted was really looking out for his well being not hers. Seniors are targeted by every kind of scam you can think of, but to me the most heinous scam committed is one that is committed by a trusted advisor.

If you go to an attorney for estate planning or Medicaid planning and it is suggested that for overall ease he can also handle your investments I would immediately ask the following:

1. Do you handle my investments personally or do you send me to someone else?
2. If you do refer me to someone else are you an owner/partner in their business as well as you law practice?
3. Do you receive any compensation from the programs I invest in, through you or the other person you refer me too?
4. If you do (receive compensation) will you reduce my estate planning fees in direct relationship to the amount you earn from the annuity or securities purchased?
5. If not – why not?
6. Are you licensed by the State of Michigan to sell annuities or securities?
7. Don’t you think that there might be a conflict of interest in you making money from both attorney’s fee and sales commissions?

Based on the answers to the above questions you may still choose to use that person or not, but at least you will be aware of everything and you can make an informed decision.

Unfortunately many of us are intimidated by those who we go to for advice, be it medical or financial. We don’t ask the right questions or we’re afraid to ask at all. For the most part we are very trusting of those we look to for advice. For that 90 year old couple and my client that trust proved to be costly. Don’t be intimidated and ask questions before you sign on the dotted line. Know up front what you’re getting into and read your policy. If you don’t understand something call the agent or the company but keep asking until you’re satisfied. It’s your money and your future. You have to have confidence in what you are doing to avoid the “Con”.

Fred L. Goldenberg is a Certified Senior Advisor and the owner of Senior Benefit Solutions of Michigan. He is also a founding member of the Senior Resource Alliance of Northern Michigan